Choppy Action and a Dead Cat Bounce

Posted on by The INO.com Team

This week has been one for the history books and it's not over with yet, we still have today's action to contemplate. So what has the market really accomplished this week? Well, it has frustrated both the bulls and the bears, that's for sure. It's hard to believe that after all of this chop that the Dow is only up 1.18% for the week if it closes where it is currently trading (and less than that on the S&P 500).

What does all of this choppy action mean? Has the market topped out? Is this a "dead cat bounce"?

Let's just let all the dust settle and see what is going on in the major indices for the week and the month.

Last week the major indices closed at:

DOW : 16,459.75 down -5.82% for the week.
Close 8/27: 16,654.51
+ 1.18%

S&P500 : 1970.89 down -5.76% for the week.
Close 8/27: 1,987.66
+ 0.85%

NASDAQ : 4717.16 down -6.53% for the week.
Close 8/27: 4,810.92
+1.98%

Last month the major indices closed at:

DOW : 17,689.86
Close 8/27: 16,654.51
- 5.85%

S&P500 : 2103.84
Close 8/27: 1,987.66
- 5.52%

NASDAQ : 5132.10
Close 8/27: 4,810.92
- 6.25%

Looking at the hard weekly and monthly numbers, it is very difficult to make a bullish case for stocks. Right now the weekly and monthly Trade Triangles are RED indicating the major trend is down for the DOW, S&P 500 and the NASDAQ. The rally that we witnessed on Wednesday and Thursday, in all likelihood, is a "dead cat bounce" and really no more than a counter-trend move against the prevailing downtrend, in my opinion.

One thing many professional traders will be watching today is where the market closes. The close today and on Monday could well be the most important closes for the year.

I have said this before and I cannot overemphasize this point - stay disciplined and don't get suckered into the rallies unless they are confirmed by MarketClub's Trade Triangles or another technical tool that you use for making trading decisions.

Presently this market is trading on perception and whatever the "sentiment du jour" is for the moment.

Have a restful and peaceful weekend,
Adam Hewison
President, INO.com
Co-creator, MarketClub

4 thoughts on “Choppy Action and a Dead Cat Bounce”

  1. I agree Adam.

    Some very sound cautionary advice for people n your post I believe.

    Unfortunately most of the Mr and Mrs average think there is nothing to worry about , are taking no action and are not being given your kind of message via the MS media.

    This is a relief rally. Nothing has really changed.

    China has not miraculously now found a higher gear for economic growth and export boosts. . Japan is still madly running the printing presses to finance their growing budget deficits and to selectively support their bubble share market. The EU is still giving money to Greece so that Greece can hand it back to the EU to create the illusion the debt is being paid. The Fed, the ECB and others are still suppressing interest rates. The ECB is still running a QE program that is doing nothing for the real economy. Just about every major country is still spending more than it earns…which in turn increases the already sky high public debt levels. Not a complete list by any means.

    The illusion of prosperity and sound economies continues…but probably not for much longer.

    1. It's the soundest economics we've had since the '90s, which isn't really saying much, but the prophets of doom, along with those who insanely believe that gold will help them in such doomsday event, are not reality based.

      If you really believe in doom and gloom, you should be filling your garage with canned goods. I recommended the same thing quite a few years ago, specifically with tuna, and what happened? Tuna cans went to five ounces, and a nuclear disaster frightened people off tuna. The guy who filled his garage with tuna could be making a killing now, and the guy who hoarded gold is down a bunch.

  3. We won't know if it's a "dead cat bounce" for at least a couple weeks, maybe more. Premature characterization.

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