I wrote an article for TraderPlanet last week entitled No Place to Hide and in it I suggested that this past week marked the start of a bear market. Writing this article on Sunday evening, however, with the Nasdaq futures down around 20 points, I’m not looking for Black Monday.
To be clear, I am not optimistic about the market’s upcoming prospects. During corrective periods such as this one, those who are in charge orchestrate “gap hunts” and the next significant gap in the Nasdaq is at 3839-3870, which is my downside target. This gap zone is marked on the accompanying chart.
That said, one of my indicators (not my intuition) is telling me that we should have a significant bounce tomorrow (Monday).
It’s not some ultimate oscillator that’s whispering to me that the market is so incredibly oversold that it must bounce. Oscillators are great tools, and honestly I’ve never met an oscillator I didn’t like, but they are not predictive. They simply tell us what’s happening now.
It’s information about market structure that is likely to have more actionable relevance. By market structure I simply mean the levels at which significant amounts of buying and selling have previously occurred.
These levels can be ascertained to some degree by inspecting a chart if you know what to look for, but the easiest way to see them is to plot volume-at-price rather than volume-at-time. This gives you the zone ladder where actual supply and demand reside. These volume levels are watched by institutions because they need volume to get good executions.
The Nasdaq, Wall Street’s mood ring, closed on Friday near one of these important levels, its Volume Profile Point of Control, which, using a 400-day look back, is 4265. In the skyscraper that is the market, this is a very crowded floor and the elevator should stop here.
I noted last week that the sell-off has been unusually synchronized across the major indices. Similarly, I expect the rallies to run in lock step, as well. If the Nasdaq bounces on Monday, the rest of the market should march higher.
By the way, the strongest rallies occur during the heaviest corrections, so if we get a honey of a rally, then don’t forget to look around for a bear.
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