• 17 hours Jobs Report Doesn’t Say Much Amid COVID Uncertainty
  • 1 day Crypto FOMO Heats Up As Bitcoin Climbs Above $11,000
  • 2 days Aluminum Is Bouncing Back In China
  • 2 days The Deep-Sea Mining Debate
  • 3 days Markets Trending Down Despite Tech Blow-Out
  • 3 days Big Oil Battered On Dismal Earnings
  • 4 days Russian Billionaire Bails On Mid-Sized Gold Miner
  • 4 days Gold Stocks Gear Up For A Big Autumn
  • 5 days America Is Looking To Bring Nuclear Power To Space
  • 5 days What Is Behind Gold's Astonishing Rally?
  • 6 days Stocks Tumble On Brutal Economic Report
  • 6 days Kodak Soars By 400% After Trump Bump
  • 7 days U.S. Coal Production Falls To 42 Year Lows
  • 7 days Indonesia Moves To Bolster Mining Sector
  • 8 days The U.S. Dollar Is Losing Ground As A Reserve Currency
  • 8 days Gold Prices Soar To Record Highs As Dollar Dips
  • 9 days Republicans Unveil Stimulus 2.0
  • 9 days Big Oil Is Back On The M&A Game
  • 10 days Big Banks Want Masks And Lockdown In Second COVID Wave
  • 12 days The Unintended Consequences Of A COVID Stimulus
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Countertrend Moves: A Normal Part Of All Trends

100% Normal And To Be Expected

UP-DOWN

In this week's video we noted that markets would be easy if they went up every day during a bull market and down every day during a bear market (see clip). As humans, when we see bearish charts, we tend to expect the market to drop every day. Since we know markets do not work that way, it is prudent to remind ourselves that any sharp drop (correction/bear market) is typically accompanied by sharp countertrend moves.


Mental Preparation Important

If we know a countertrend move falls into "normal" territory, it is easier to filter out the noise when the next one begins. Right now, the stock market is in a downtrend. We assume it will remain in a downtrend until proven otherwise. Therefore, any initial rally in 2016 will be treated as a countertrend rally (aka noise) until the data proves otherwise.


If Stocks Bounce

The table below shows some reasonable levels that the NYSE Composite Stock Index could rally back to, along with the percentage gain from the close on January 20, 2016. The purpose here is not to predict, but rather to become mentally prepared for an inevitable countertrend rally that will occur at some point in the coming days/weeks/months.

Possible Countertrend Moves


Four Levels That Have Been Relevant In The Past

The chart below shows what may be a neckline on a weekly head-and-shoulders pattern. The pattern is described here relative to a similar pattern in 2008. It should be noted that as long as the market stays below the neckline, stocks remain vulnerable to dropping further before any countertrend move. As of January 20, the market remains below the neckline.

NYSE Countertrend Target 1

Weekly lows in August 2015 and January 2016 both occurred near 9,513 on the NYSE Composite Stock Index.

NYSE Countertrend Target 2

9,732 was relevant in early 2014 and again in late 2015; it may be relevant again, but this time "what once was support may now act as resistance".

NYSE Countertrend Target 3

9,886 found buying support after a sharp drop in October 2014; it may be relevant again, but this time "what once was support may now act as resistance".

NYSE Countertrend Target 4


Stocks Continue To Drop Scenario

If the breach of the neckline, shown in the first chart above, holds, stocks could continue to fall further as they did in 2008. Since studies have shown predictions about where stocks will be in several weeks or several months tend to be no better than a coin flip, we will continue to monitor and adjust rather than anticipate and hope.

 

Back to homepage

Leave a comment

Leave a comment