This is what we call a weak bounce:
The S&P 500 fell 500 points in 2022 (so far) and now it's bouncing 20% of that drop, which is 100 points. According to our 5% Rule™, we look for 20% pullbacks from a rally or sell-off at each significant increment of 1.25%, 2.5%, 5%, 10%, 20% and 50%. It's not very different from a Fibonacci Retracement but we adjusted to take into account computer trading – since Fibonacci Retracements govern natural growth cycles, not coded ones…
And, as Asimov said:
“Since emotions are few and reasons many, the behavior or a crowd can be
more easily predicted than the behavior of one person can. And that, in turn, means that if laws are to be developed that enable the current of history to be predicted, then one must deal with large populations, the larger the better. "
That's why our 5% Rule™ applies so well to indexes and actively traded large caps and commodities – but not so well to individual stocks – we need a better sample size to make more accurate predicitions. That is another major flow in Technical Analysis – it does not take volume into account.
14,700 is where the Nasdaq needs to be to get out of the Bear Set on our bounce charts and it's well below that at 14,400 – despite this morning's 250-point gain. If the Nasdaq does clear 14,700, we will flip a bit more bullish but, for today, most likely we are still just watching and waiting – especially ahead of the Fed's firrst announcement of 2022…
You must login to see all of Phil's posts. To read the rest of this article now, along with Phil's live intra-day comments, live trading ideas, Phil's market calls, additional member comments, and other members-only features - Subscribe to Phil's Stock World by clicking here.
To signup for a free trial membership, click here.
Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!
