Oversold Bounce in the blink of an eye

Was that the oversold bounce? True, the market rallied nicely up aprox: 26 points from this mornings low. In fact many bears were caught leaning the wrong way and actually started to groan. Even the semis started to exert themselves. We were aware that the move would be swift and not travel too far but were supprised by the sudden reversal back down in the afternoon.

You can blame it on oil hitting a record close over 67, or Geo-political concern in Latin America, or even the N.Y. Feds announced intention to examine derivative trading (Long Term Capital anyone?) , what ever excuse that you choose is just a substitute for the truth. This summer market was ONLY prepared to offer us an oversold bounce at this time and nothing more. That is precisely what we got.

The nasdaq and small cap indexes out performed the Dow which is a positive, also the breath was not too negative. The Vix got a little jumpy which demonstrates fear ( a contrary indicator). However, the volume was heavy and we had a reversal that closed near the lows of the day which is a negative.

We did not do much selling today due to the fact that our positions are showing very good relative strengh. This is also encouraging to us that a very good bottom is not too far away, perhaps mid- September. However, we are listening to the market which has told us that the oversold bounce has probably come and gone. We would have preferred to sell some more positions into todays strength but were caught off guard with the reversal. Fortunately, our strong performers and large cash hoard allowed us to escape relatively unscathed.

If You Held a Taser to Our Head: The market had the oversold bounce as we expected but did not hit our target of 2165-2170. We will now use any strength to lighten up a bit in order to be positioned for the better buying opportunity soon to come.

Have a nice evening.

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