Just finished a good deal of traveling over the past two days.  Wanted to provide this update mainly due to the market volatility that’s yet to subside.

There’s been quite a bit of discussion regarding the “Plunge Protection Team” and how they may have stepped into the equity markets in a big way to move the DOW up over 1000 points in the largest one-day-point-gain ever.  There’s also been a lot of back and forth about how algorithmic trading may be the main culprit behind the excessive movement we’ve seen of late.

Much of this may be interesting but it all fits with how we saw matters several weeks back and still see things now.  We were expecting that volatility could really pick up, which it has.  We then wondered if we were closer to end of the selling or still closer to the beginning.  That question remains unanswered.  In fact, despite all the movement and talk that it has produced, nothing has changed all that much.

In this week’s newsletter we wrote about how historically oversold the market was at that point.  The post-Christmas rally removed much of that naturally, yet, it didn’t change the technical picture just yet:

After our $240.00 level gave way in the SPYs so quickly last week, we had to scramble to find the next level down which we ballparked at $235.00ish.  The yellow arrow in our graphic points to a level where the SPYs did find support quite close to that before the historic bounce.  The blue line in the graphic points to the resistance line we’re working with at the moment and clearly yesterday’s action respected it as did today’s thus far.  For now, a lack of a close above that level means that the bears remain in control.  A close above and we’ll have a better chance at at least a relief rally that can sustain itself for a little while.

So YES, much movement but no change in control just yet.

Remember, the markets tend to get thin in the final week of trading normally starting near Christmas Eve.  That’s just another reason why we continue to suggest that being an observer may be better than being a participant.  When we’re enmeshed in phases like this, the markets become noisier and more unpredictable, both of which are of less interest to us than normal times which deliver more bankable performance.

For now, we remain oversold in a larger-picture context and we’re above support but below resistance.  What we can now submit for consideration is that the tax-loss selling will run it’s course at some point soon due to the year ending.  Do we get a trade-able rally with some bargain hunters finding themselves with more too choose from than they could have imagined?  In in early January yet?  A time when buys-side players load up on stocks for the coming year which has historically made getting good value difficult at such time very difficult.  It’s a definite possibility and would likely be enough to create enough lift to put a sizable buffer between whatever higher level we reach and the lows we’ve seen this week.  Those lows could become the line the delineates bear market from bull market territory but that will only be true if they hold and we can only to wait to see how this all plays out.