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Quick Comments: From Daily Decision-Stock Trader Editor Richard Meiers
Looking back to the last waterfall sell-off in the fall of 2008 gives us a possible outline of what’s next. The 2008 chart and 2011 NASDAQ charts share a common visual, stocks bounced back and forth in a wide sinusoidal trading range for months. The wave like motion between support and resistance stayed in tune until the bottom trend-line broke, and then is was just a free-fall.
If the two situations share some trading DNA, then the first phase is likely close to completion – maybe one more day of relatively lighter volume and selling. In 2008, the first pooling area and rebound occurred after two consecutive days of increasing volume that were the two biggest trading days of the year. We got the same exact look yesterday.
In 2008, like I mentioned above, day 3 was about half the previous day’s volume and down a manageable amount. Today could be different, but no less volatile with the FOMC Meeting Announcement at 2:15 pm eastern.
Whether phase one ended yesterday or today doesn’t matter, right? Just make the pain stop. What happens next is key as we start to construct a new trading belief system.
The NASDAQ started a more normal declining pattern of a series of lower highs followed by lower lows. Each high tended to coincide mostly with the 12 day-moving-average, but on a few occasions closer to the 26 day-average. This pattern went on for about 6 weeks before finally finding a bottom.
If the 2011 chart somewhat mirrors 2008, then first leg up could be about 10% from here. That would put the NASDAQ pretty close to 2500. Another way to look at it - as the percentages are likely to be different - is the first rebound clawed back about 50% of day two’s losses. Again, that would put the NASDAQ in 2500’s neighborhood.
Allowing for some margin of error, that’s about where I would expect selling to resume. And then we will be watching to see if the initial bottom – likely to be yesterday or today’s close holds.
All the Best,
Richard Meiers.
Editor Daily Decision-Stock Trader
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