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Retest of Lows – Painful But Productive

The chart above (courtesy of Doug Kass from The Edge) shows the chart of the S&P 500 superimposed over the chart of New 52 Week Lows.

You can see that during the corrections in August, November and January, the market was making a significant number of new lows. The current pullback toward the January low does not show anywhere near the same number of new 52 week lows that the others have shown.

To me, this means we are just doing a retest of the low from last month, but that the broader market and the companies in the market are showing strength. If this is the case, we could see a bottom finally put in and a resumption of the bull market.

If the new 52 week lows increase and the index drops below the January low, then we are likely in for continued volatility and further price declines.

More later!