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Bottoming Process Continues

Yesterday was another painful day in the process of the market finding a bottom, building a base, and subsequently moving higher.

There were some positive technical signs amid the pain. You can see that I've drawn two black trend lines on the graph for you.

The upward sloping one in the top box shows you that at the low of the day during the selloff, it was less severe than the previous selloff low, which was less severe than the one previous to it. This is a positive sign that the market is strengthening and that even though there are sellers, they are not driving it down further.

The downward sloping one in the next box shows you the trend in volume. The selloffs are happening on lessening volume, which means that the conviction and number of the sellers is falling.

This is all part of the bottoming process after a crash. As long as the market can avoid any major news-driven selloffs that fundamentally change things we are likely to form a bottom and move higher from here. However, this is all predicated upon the actions taken by the government to unfreeze the credit markets and reflate asset values being adequate and timely. We have not yet had any of the TARP money injected into the system and the market desperately needs it as there is a lot of uncertainty around whether it will be adequate – the market is already teetering on the concept that since it is not yet in the system, it isn't timely.

Hang in there – we'll all make it through this.