Almost Time for a Bounce?

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Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

After yesterday’s session, stocks again closed right near their session lows for the third day in a row. So far, any signs of a near-term bottom are completely hidden in the price action. 

As a refresher and for perspective, let’s look at the four-year weekly chart of the Russell 2000. The sharp rally off the early 2009 lows moved higher in a channel (blue lines) that was violated to the downside in the first week of August. When a primary trend such as that gets broken, the asset or index in question very often retests the breakout/breakdown point before then again heading in the direction it broke out/down to.   

RUT Weekly Chart

Zooming in on a daily chart looking back to August 2010, note the clear break of the longer-term uptrend discussed in the previous chart. It is likely that at some point soon the Russell 2000 would start moving higher again to near the $750 level where it broke down from. If and when it rallies back up, it would then be prone to resume its downward trend with a target somewhere near the $580 level, which also corresponds to the August 2010 lows. 

RUT Daily Chart

The weakest link yesterday was again the financial complex where, among others, both Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) were again brought to their knees. From a technical perspective, the charts of the financials are broken with no support left on the daily or weekly charts until another 8% or so lower from here. We remain waiting for buyers to show up and give us believable price action before even considering any long-side plays. At the same time, it is the financials that must show signs of life for the broader market to start getting at least some temporary upside mojo back.

XLF Chart

Just for fun, here is a 12-month daily chart plotting the Financial Select Sector SPDR (NYSE:XLF) versus the SPDR Gold Trust (NYSE:GLD). Notice a little diversion there? At some point, that will revert back to some sort of mean and we are spying for clues as to when that may begin.

XLF vs GLD Chart

For now, as discussed yesterday, stocks may still have somewhat lower levels to test on the majorU.S.equity indices (even if just intraday) before being able to stage an oversold bounce. However, we may be very close to the start of a more sustainable oversold bounce.

 


Article printed from InvestorPlace Media, https://investorplace.com/2011/08/daily-stock-market-news-almost-time-for-a-bounce-2/.

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