Markets Close Lower But Stage An Impressive Intraday Reversal That Sent Stocks Well Off Their Lows; Bullish Hammer Candle Patterns Are Everywhere

October 25, 2007

It wasn’t the most bullish day what-so-ever with the markets all down across the board. But the bullish intraday reversal that sent stocks well off the lows and near the HOD for most indexes has to be considered a successful outcome for the bulls. The Nasdaq, at one point, after the first two hours of the day, was down 2.8%. By the end of the day Nasdaq was only down .88%. This created a very bullish candlestick “hammer” pattern (indicates the index is hammering out a bottom) and when combined with the very bullish daily bars the past two days is nothing but bullish for the charts.

Two more indexes with beautiful similar patterns are the Nasdaq 100 and the IBD 100. The past three days, if you did not listen, watch, or read anything related to the stock market and then you took a look at these charts you would be very bullish on the market. However, most are bearish after the recent action since Friday which continues to make me bullish on the short-term despite the distribution.

Yes, today was a distribution on all the indexes. That now gives the Nasdaq five distribution days the past few weeks. However, the Nasdaq 100 just recently hit another new 6 1/2 year high and the Nasdaq is still well above the 50 day moving average, so it is best to remain with our bullish bias but just be aware that further weakness would be very negative. That would then lead us to take profits on stocks we have gains on in order to protect our profits from a possible selloff.

Right now, the markets seem very bullish to me as the crowd appears to have become very bearish in the short term. Most pullbacks are quickly called “tops” and “the real selloff.” However, all of my current holdings (well most) continue to act very well, minus one or two every other day due to the current earnings season. And that is normal every earnings season. The three full sells today netted me gains of 2% and two losses of 3% or less. That isn’t that bad at all, now is it!

If we get another few major selloffs on higher volume, I will be getting bearish. But just because most of my new longs are of poorer quality and the best of the best of them are not moving higher immediately like they does not mean I am going to get bearish on the market. A lot of distro days wont do that either. My longs will need to start failing along with the just mentioned scenarios to get me bearish. Right now, with the bearishness I see out there, i would suggest holding your longs.

The investors intelligence came in today, with the bulls dropping from 62% to 56% and the bears increasing to 22% from 16%. This shows that the mood of the crowd has become more cautious after the Friday selloff. The current jitters of Wednesday’s session can be seen in the put/call ratio. That number is at .95, very near the fear level of 1. This shows that the crowd is still placing bearish bets on the market, thinking that all of this action near all-time/seven year highs is actually bearish and not bullish. Time will tell but there sure are a lot of shorts out there in the NYSE. The crowd is normally wrong so I don’t see why it should be different this time.

Markets Close Lower But Stage An Impressive Intraday Reversal That Sent Stocks Well Off Their Lows; Bullish Hammer Candle Patterns Are Everywhere

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