Wednesday, December 17, 2014

Finding a Bottom (...Continued)

On Monday, we laid out a few bull and bear cases for potential market direction over the final weeks of the year.

As an update, yesterday we got the first signs of waning momentum in downside breadth.  Granted this is on a very short term basis but it was an initial hint that a short term exhaustion/bottom may be in place.  

That coupled with severe oversold conditions led us to believe that investors could see a tradeable short term bounce.  For instance, yesterday we observed a slowing of new 20 day lows across the market (we mentioned the significance of this in our Monday post).  We also saw fewer stocks moving down 4% or more on higher volume.  Again, couple that with extreme oversold indicators that we mentioned Monday and a rising VIX and the stage was set for an oversold bounce.  

The market started off the day strong and has now exploded higher after the Federal Reserve's scheduled 2pm comments.  A day does not make a trend change so we'll need price to continue to confirm and hold the lows.  That's what we'll be watching over the next several hours and days...

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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