Stock Market Analysis

Tuesday, February 16, 2016

Double Bottom Reversal Pattern Developed!

Welcome back from the long weekend!

The dead cat bounce is currently well underway exactly how I said it would last Wednesday night. No surprise there. A strong positive day today on the back of worsening economic data only confirms that this is nothing more than a dead cat bounce. Empire state index continues to point towards a contraction in manufacturing for a 7th straight month and housing market index continued its downtrend this month after peaking off last October. Over the past few years, with little to show on the economic front, housing has been one of the most important factors for the stock market growth so far. With this factor now shaking to the core, it simply adds on to the possibility that this is nothing more than a dead cat bounce at a nice technical level which encouraged some of the remaining bullish remnants to buy.

Looking inside, we saw a significant jump upwards in the bond yields with the total equities put call ratio remaining largely in the uncertain zone. These factors tells me that today's strong up day was somewhat overdone by the investors but with traders still remaining uncertain and skeptical. On the technical front, the market did complete a very nice double bottom formation along with strong bullish divergence, which in a normal intermediate correction scenario, I would say denotes a bottom and the resuming of the previous bull trend. However, looking at it in the context of a market crash scenario tells me that this could be a significant dead cat bounce akin to an intermediate correction in a bull market scenario. Yes, even in a full blown bear market, positive weeks or even a positive month is perfectly possible and this "dead cat bounce" has every indication of becoming one of these significant pull ups before the primary trend turns bearish.

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Market Crash Timer: RED

For now, the market turns a short term bull trend within an intermediate bear trend and primary neutral trend.


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