Thursday 31 May 2012

Will The Bounce Hold?

This is what I said yesterday: “we might see a lower low intraday tomorrow but more likely than not, we will also see a bounce”. And we got just that. How far the bounce will go? We will know tomorrow how much fuel is left in the rocket and whether it will go to another planet far away. So no front running. Going against a trend and running with a countertrend rally is an expensive proposition, which I have learned painfully.

The interesting thing that happened in the market today, both VIX and SPX closed at red. VIX is showing a spinning top. I also see a kind of double top.

It kept changing throughout the day. In the morning it was solid green, 30 minutes before close it was a hanging man and at close a spinning top. This shows that there is fair amount of indecision in the market. Greed and fear are fighting for supremacy and if nothing bad comes out of Europe, most likely greed will win, short term. At least I am trying to keep my greed in check.

1300 level in SPX held for now and I sincerely hope and expect that it will now test the 50DMA which is around 1368. Today it looks doubtful whether it will reach there and that is result of the negative sentiment build up. But all that can change in 3 huge up trading days and folks will be talking of new bull run! Zuckers all.

That reminds me of Mr. Zuck. While he is having the fun, his FaceCrook shares had a rare reversal of fortune in the last 2 hours and ended the day in green. After IPO, the share had six red, two green and one eh! days. Talk about hype. And still it is at almost 90 time valuation of its current earnings and possibly 30 times expected earnings. Who all are buying this? What am I missing? It was a great example of greater fool theory beautifully executed by the company insiders who bailed out at the right time. The FB share will have free fall after its next quarterly earnings report and I am very sure it will be counted in penny stocks by 2014.

So where do we go from here? Nowhere actually. We wait patiently for the set up to be complete before we make our next move.  For the last week or so, the markets are churning in a range.

Unless it brakes the range and goes either way, there is nothing much to do. Thanks for reading . Please re-tweet, forward, post it on your wall and share it anyway you can. My Twitter id is @BBFinanceblog and Stockcharts : Worldoffinance.  


  1. great blog BB. But if the FED needs panic to launch QE3 isnt 10days till FOMC too little to get a bounce and a free fall to new lows to justify QE

  2. Hi BB, seems breaking the bottom of 1280 and free fall is faster than expected?

    I believe there is a big "V" coming before 3 weeks as you said. Any change in road map now?

    Have a god weekend!

    1. Hi Mikey,
      two days back I wrote that it is possible that we will test 1283, SPX 200 DMA.The reason I am sitting on the sideline is I was not sure about the bounce. It had to break one way or other and it did break to the downside.
      Will we have a freefall from here? While it is possible and my ultimate downside target is around 1200, I think we will have a short covering rally before we plunge again.
      Let us see how this week passes. I will be writing a detailed post over the weekend.