This market has certainly provided much stress to both the bulls and the bears alike. And, unfortunately, that is the nature of corrective structures. They provide frustration to both sides of the trade. Yet, one of the most important pieces of information for a trader or investor to glean from the market is the ability to recognize these environments before they begin in earnest, so you can adjust accordingly.
Of course, there are often times when, despite a rigorous analysis, there is no clearly preferred interpretation. At such times, you must wait until the count resolves itself. When after a while the apparent jumble gets into a clearer picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%.
First, clearly, the analyst must be right much more than they are wrong. And, they must utilize a methodology that can identify when they are wrong relatively quickly so as to avoid a large drawdown. This keeps clients profitable over the long term. Now, I will get off my soap box, and move into the analysis. First, I want to remind you what I said last weekend:
The positive divergences we were seeing in our technical indicators evidenced the exhaustion of sellers, which is when the market then turned sharply in the opposite direction. In a 1988 study conducted by Cutler, Poterba, and Summers entitled"What Moves Stock Prices," they reviewed stock market price action after major economic or other types of news in order to develop a model through which one would be able to predict market moves retrospectively. Yes, you heard me right. They were not even at the stage yet of developing a prospective prediction model.
Most such jumps weren't directly associated with any news at all, and most news items didn't cause any jumps. One of the noted findings was that the trading behavior of the participants was"very similar to that observed in the real economy," wherein the price distributions were based on Phi. Consider that a bit more carefully. This means that there is potential we would see the exact same structures in the market if we did not have news or reports being published constantly. This, to me, is somewhat mind-blowing.