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Boom Goes The Dynamite

S&P 500

If you were watching the markets today – I was in a Bond Math seminar in Springfield learning all about the Economic Value of Equity – you may have seen the NASDAQ implode and freeze up for three hours during prime trading.

NASDAQ has had several issues in the past year or so, with the flash crash, followed by the Facebook IPO trading debacle, and now the freeze. It seems no wonder to me that small investors are wary of the stock market when the market itself cannot be trusted to function effectively.

The S&P 500 did not freeze up today, but it did post its first positive day in awhile. In the chart above, you can see that the pullback we talked about from the overvalued area to the 50-day moving average finally had a bit of a relief rally today. If you look at the Relative Strength Indicator (RSI) at the top of the graphic and the Full Stochastics indicator toward the bottom, both are showing that the market pullback had moved into oversold territory and was in need of a rally.

The question to ask, though, is whether this rally is the end of the pullback or if it is just an interim bounce until a bigger move lower can be realized. As always that is the $64,000 question – so to answer it we want to look at some market internals. You will recall an earlier blog post where we talked about market internals and how, in spite of the market making highs, most stocks were trending lower in price.


This simple graph above shows you the Bullish Percent Index compared to the S&P 500 – you can see that the red line (which represents the number of stocks in bullish trends) is making a low while the index is showing much less downside action.


The graph above compare the High/Low Index to the S&P 500 – you can see the red line (the High/Low Index demonstrates the number of companies making new highs compared to new lows) is making a low compare to the market.

Both of these are significant indicators demonstrating that the average company is still doing worse than the broader market.

Based upon these two indicators, I’d surmise that the current bounce is just a bounce and not the start of a new sustained leg up – that will likely have to wait. We have the potential to move down to 1575 on the S&P 500 Index:


I’ve added some Fibonacci retracement lines to our standard graph of the market and you can see three apparent things:

1. We are current consolidating on the 89-day exponential moving average (a significant support level) which is no surprise given that we hit an over-sold level in the market

2. The 38.2% retracement level is at 1575, and

3. it coincides with the June low where we were big buyers of the market

Our strategy as explained here on the blog was to be big buyers of the market in late June/early July – we did that and enjoyed nice profits from it. We then utilized stops when the market moved back above 10% > 200-day moving average and raised cash prior to the most recent pullback. We have, in recent days, been picking away at quality companies that are part of our current target strategy buying them at cheaper prices than 10-days ago, and we will continue to be buyers as the market pullback runs its course.

So, for those of you who are fans of Tosh.0, you recognize the title of this post as one of his most famous bits. Given today’s NASDAQ implosion, I thought it would be interesting to see the coiner of that phrase in his infamous sportscasting video audition.

However, if you want to skip it and move directly to today’s music video, you can find it following Boom Goes The Dynamite:

Click Here To View Today\'s Video on You Tube

And now for the tunes…

Click Here To View Today\'s Video on You Tube