Choppy Waters Lie Ahead After The Initial Bounce
- Posted by Frank Zorrilla
- on August 5th, 2011
@TraderStewie put up a chart on the SP500 on 8/3/2011 explaining that; “The real bounce almost always comes AFTER a successful retest.” The fact is, if you go back and study some of previous major sell offs, they all pretty much retested the first low. That is one of the reasons why when I get involved in the mean reversion trades I only do it with an index etf. On the retest when you start to see positive divergences; fewer new lows, higher RSI, MACD, etc…is when you pounce on individual stocks.
Here are the charts from some previous sell-off’s:
The 1974, 1990, 1998,2002, sell-off’s all started during the summer and retested 1-3 months later. We all know when 87 happened. This is just a potential road map, so choppy waters lie ahead for a couple of months. BTW, we are yet to know where that initial low is, it could have been yesterday, it may be today, next week, I don’t know. But the key is to realize that most sell-off’s like Stewie said at one point retest the first low.
Here is an off the top snap shot of these sell-off’s:
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC.He began his Wall Street career 10 days after his 20th birthday when he became a Series 7 licensed stock broker. More »
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