Was That The Bottom?

Today we finally got some constructive action in the market. Actually, today had many of the same characteristics of the August 16th market bottom.

Today was a high-volume reversal. The market was down big intraday, but reversed higher to close at the highs of the day. And volume rose on the session.

If you look at the chart above, you can see just what I am referring to. The action in the charts today is what trades call "long tails". That means that the market moved substantially lower, but reversed and closed at the top of today's range. This leaves behind what looks like a long tail on today's bar in the chart. It is very similar to the daily bar on Aug. 16th.

As such, I believe that we put in a short-term bottom today. I don't know if it will have the sustainability of the August bottom, but that's getting ahead of ourselves. The market had gotten deeply oversold, at the same time the sentiment indicators were flashing extreme bearish readings.

The naysayers will say that today was just a short-covering rally. Don't listen to them. Every market bottom starts with short-covering. The shorts have been riding their stocks down, and watching their profits grow. So the fact that they ring the register on a day like today is not surprising. And longs who have been waiting and waiting to see how low prices would get do not want to miss out on this sales. So they will likey move quickly to put money to work.

The S&P held at the 1400 level, around the same levels it found support back in August. So we didn't take out the August lows, which is another net positive. Also, there were 725 new lows on the NYSE, a very high figure. This also happened in August, when there were over 1000 new lows.

One difference now is that we are just beginning earnings season, so these reports have the ability to color any given day's action in the market. But hopefully expectations are low enough that most companies that report solid earnings will see their stocks rally.