Why a Bounce?

The market bounce scenario has been on my radar longer than has been convenient for my own investing/trading. But that’s the way corrections and reactions often go I guess.

At first it was taking the form of a potential short-term Inverted Head & Shoulders pattern, which would have theoretically targeted around the 3000 area on SPX. That would have obviously compromised the longer-term bear view. But then the would-be right side of the pattern dropped down to test the October low and now here we are, on a bounce again (sans the big upside directive of an Inverted H&S). The SMAs 50 & 200 are key, along with the October and November highs if the bulls really get a pump going. If I am a bear I like this bounce scenario much more than the I H&S scenario.

In support of a seasonal bounce comes the mainstream financial media and headlines like this. Look at not only the big headline, but also the little ones below it. You can click the graphic for the article at MarketWatch. It’s Canacorn and Morgan Stanley’s analysis, but it just happens to make big headlines now. Funny how that works.

We are now in the ‘reinforce the herd’s perception’ mode to the downside whereas when stocks were rising hysterically last January it was the opposite. Also, notice how SPX is about to make a “death cross” of the SMA 50 below the SMA 200. That’ll surely show up as headlines galore in the media and blogosphere.

So why a bounce? It’s self evident. Everybody’s on the bear story at the moment and bearish sentiment could use a clean out.

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