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Wait for a bottom

Posted by Dan on August 19, 2013

The scenario we lined out last week clearly didn’t pan out.
The market stalled near its recent highs and then dropped significantly.
With another week of lunar red period to go, it is probably too early to jump back into the market already.

Let’s have a look at the Nasdaq chart (click for larger image):

Nasdaq

The 3700 level proved to be major resistance again, and now the Nasdaq has dropped to 3600 already.
While the market could continue to hover around current levels for a while, I don’t think this correction is over. This decline has started with several bearish divergences in my Earl indicators, which usually means a larger correction is in the pipeline. It is very similar to the situation we saw in September 2012.
So, I think we will at least get down to the lower trend line, around 3400-3500, before we start to see any bottom in my Earl2 indicator.
If you are looking for a good buying opportunity, then I would just patiently wait until we see a much clearer bottom.

Traders who didn’t sell yet will probably use any rally to take some profits now. Once we are through with that, we will be in a position where another attempt at new highs becomes possible.

Good luck,
Danny

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