Market Comments 24/2/2011

The market was down modeately today -0.7%. We're still not seeing any panic selling.

Volume was above average and the market finished close to its lows.

A number of factors are coalescing today to suggest that this is the point at which a bounce should occur.

1. The market hit the 50-Day Moving Average. That has held the market since this rally began in December 2010.
2. The chart is at the long-term up-trend line.
3. 4900 on the XAO is a strong horizontal support area and
4. Big round 00 numbers are psychologically important.

That's a quadrella.

Action today saw more supply come into the market. Were the strong hands buying? Yesterday it looked likely. Today, with a close near the low and heavy volume? We won't know till tomorrow. If tomorrow is a strong rebound - then yes they were buying.

It is often the case that a strong down day closing near the lows on heavy volume conceals a lot of buying - but you don't know until the next day. Did today exhaust the sellers? It's likely.

Let's look at breadth to see if there is support for this hypothesis.

Advance/Decline Ratio for the past three days:

1. Tuesday 0.46
2. Wednesday 0.64
3. Today 0.82.

Today was still bearish - but momentum is clearly declining.

AdvancingVolume/DeclineVolume Ratio for the past three days:

1. Tuesday 0.63
2. Wednesday 1.04
3. Today 1.47

The ratio has clearly switched over to the bullish side. That suggests to me that a lot of buying occurred concealed by the down-day stats and volume.

I'll leave it at that for now.

There are no guarantees, but I'll be surprised if tomorrow is another down day.

The current level looks to me like a line in the sand. If that breaks significantly tomorrow, then we might see some panic start. And when that happens, it's not a pretty sight.

A bounce here seems to me to be the most probable result tomorrow. After that - well ... QE2 still dominates the scene in America. :)

Good luck

Red