Not yet, just wait

A few more days of patience required

Though looking for a very strong bounce this Summer, possibly to new highs, we never put on a long position following a day where new lows exceed 4% of total issues traded on NYSE.

So, although we have some very strong buy signals going on, we are just waiting. In fact, this market could blow out a lot farther to the downside in the next few days, given the spreads in the credit markets and their current correlations to equities although signs of capitulation have formed. Yesterday’s volume was the highest in almost two months, giving us a volume bar and a possible demarcation of a low point being yesterday.

We also have new lows exceeding 30% of total issues traded yesterday, a further sign of capitulation.

The previous letter went into the reasons we are looking for a good, Summer bounce here. A lot of energy has and is being released in the markets right now, and if things to break down totally this week, then we should see good, upward movement and a cooling of volatility.

In addition to the bullish elements mentioned in the previous posting. we have major divergence setting up with Big Board On-Balance Volume:

As prices have worked blow the late February bottom, On-Balance Volume has worked higher. In other words, up days have had, cumulatively more volume than down days in this time period. This is accumulation.

Furthermore, cumulative volume of advancing stocks minus the volume of declining stocks, is into support:

In addition to a day where we have < 4% new lows (as a percentage of total NYSE issues traded), we need to see a Drop Terminus Signal, which can happen often a few days after the bottom of a serious drop. We’re not looking to be heroes and call the low day, we’re looking for an entry for a good long trade coming up that has things well-stacked in our favor.

As soon as we get this signal, I will put out an update, otherwise, more as conditions warrant.