Markets long overdue and oversold conditions were resolved this week, but can they continue their run? Both the Nasdaq and S&P 500 recorded bullish harami weeks and each were hammers as well. The Nasdaq last recorded a hammer the week ending 10/2 off the round 4500 handle, which led to a 6 week winning streak (chart below looks at the history of hammer weeks on Nasdaq which are not that common). Is this the start of something similar? Doubtful, but remember markets overshoot on both the up and downside and the negative sentiment seems to be as relentless as I can recall in a long time. The Nasdaq came within 21 handles of the lows last August and is now off 12% from recent 52 week highs. The S&P 500 did a little more soul searching on a time basis, retesting the lows made back in October before advancing 1.4% this week and is 11% off recent 52 week highs. This past week did have some extremes which contributed mightily to the snapback with fund manager cash at 8 year highs (h/t @ukarlewitz) and new 52 week lows versus 52 week highs Wednesday at 2 to 1218 on the NYSE and 3 to 703 on the Nasdaq. The markets bottomed mid day on Wednesday as well, almost in lock step with oil (for the faint of heart the levered ETF DWTI fell 200 handles from its intraday high Wednesday to the close on Friday and is now more than 40% off all time highs). As we mentioned in Thursdays Game Plan traders can not have it both ways, with some questioning the quality of leadership (the lagging energy and materials this week) and those who seem to incessantly call for the need for crude to find some stability before markets find a short term floor. Unquestionably real damage has been done technically (the transports come to mind with the IYT down 27% from recent 52 week highs and the ETF CLOSED well into the lower half of its daily range as the benchmarks went out on highs Friday), however a lot of savvy traders I talk to think this rally may have another week or so to exist and then the markets will resume its seemingly mandatory slide lower. I include myself in that camp, but when a forecast holds consensus almost unanimously the more I think its possible that the upside can bring more than market participants are anticipating.
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