Nasty!

Nasty!

When the S&P 500 cruised to a new multi-year low Wednesday it knocked out a bullish reversal day.

Longs betting a bottom was in place have been torn a new one.

Logic says down is still the path of least resistance.

But what does the market care about logic anyway?

Let the market do what it will. When it’s ready to rally we’ll be here.

Key Reversal Day

We can’t be surprised to see the major indexes cut new lows before turning around and giving a strong rally on heavy buying. It’s called a Key Reversal Day, and when it happens at key levels, like the one the Dow tested three times now, it suggests a new pivot is in place.

But we can’t confirm any bottom until we see a Follow Through Day (FTD). Beginning four days from now we want to see at least one of the indexes give a strong rally on high volume. Waiting the four days gives shorts time to cover to let us get a glimpse of real buying.

Typically, we want to see at least one of the indexes rally close to 2%. But with volatility in today’s market at extremes we’d be encouraged to see at least a 4% gain on heavy buying volume…

The market’s real reaction

Post-election were still in the camp that says Follow Through Days (FTD’s) give us increased odds of a sustained rally.

FTDs, for those who don’t know, are high volume days after a potential market low that suggest institutions are sponsoring the Long side of the market.

The fact that there was no heavy selling on today’s down day bodes well here.

But what we’ve been lacking is Leadership.

Hopefully by the end of the week we’ll have better sense of what the market’s real reaction to the new President will be…