It only took the market one day to understand that the reason why they partied, possible extension of the Greek bailout, was indeed not a reason to party, but rather to mourn.
So, as I am sure that most of you have correctly anticipated, yesterday’s market action quickly ended the uptrend that was initiated by the positive signals from the previous days. Very frustrating, but this is how the stock market is sometimes. The markets yesterday saw their biggest declines for the year and not since August last year have the indexes fallen this much. All three indexes ducked under their 50-day moving averages again. Yesterday was another 90 percent panic selling down day, quite surprising after indicators signaled a new uptrend on Tuesday. So we are back in a DOWNTREND again after the shortest uptrend possible.
Research shows heavy selling days on the first or second day after a new uptrend signal will end it 95% of the time. This means that another uptrend is still a possibility in the coming days. But as I stated in the previous market update, sometimes 90 percent panic selling days come towards the end of declines: When that selling was what was needed to exhaust the bears.
Watch the trend-lines on a chart for help to see were the market is heading. A decisive break below that lower boundary trend-line would be bearish, and would raise the likelihood for a further fall. If bottom boundary holds, and prices rise decisively above the upper boundary of that declining trend-channel, it would suggest that we will likely take out the tops from April.
The market’s message for now is to be cautious as further downside becomes a higher probability.
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