We had some wild swings in the stock market last week. Is it the start of something bigger? Could be, but I think we are already close to a bottom and I expect that we will have rather quiet year end trading next. The S&P 500 is retesting the 2000 levels and the Nasdaq is almost back to 4600, much as I had suggested a few weeks ago.
Let’s have a look at the Nasdaq chart (click image to enlarge it):
After a 600 point rally it is not abnormal to see a 200 point give-back. We may go down to 4500, but at some point fresh buyers will probably step in pushing the Nasdaq back up.
Technically the Earl2 is now clearly down, but the faster Earl (blue line) is already in bottom territory, and that could set the market up for a little santa rally to start this week. Even though the recent move looks quite similar to the start of the recent October correction, I don’t think that similarity will hold up much longer. Too many investors seem to be looking for another October style drop. A recentism bias rarely pays off in stock markets. We remain in a lunar green period until xmas, and that usually supports stocks as well.
I think we have already seen the highs for the year, and most likely we are now in a sideways period that could stretch well into early next year.
Stay tuned,
Danny
LunaticTrader 
I love the word ‘recentism’. Today, after the initial impulse up, the DJIA turned down and retraced 30 pips. Another action down, retraced 37 pips. Another action down, retraced 27 pips. Another action down, retraced 75 pips. Then turned down decisively to fresh lows, retraced 27 pips. Another action down, then 29 pips retracement. Another action, retraced 32 pips. Then at fresh lows found bottom and turned up, the move up continues with 3 retracements of about 40 pips each. If we ignore the ‘recentism’ and play as if it was mid September, when retracements managed to reach 17-20 pips, we wouldn’t make money with the same stop loss and level of risk. If we accept current volatility and don’t trade pullbacks smaller than 27 pips, we are having great retracement setups :) (however I made more money today trading ‘micro’ breakouts, I found it safer). The market obeys to the laws of tendency and trend, even if it means that every third case is lost; who respect these laws, is making money. We are having pullback after pullback in the stock market, isn’t that recentism? I agree that after we had some kind of tendency for a while, everything changes, as Linda Raschke said : when you find the key, they change the lock’. I agree that this pullback may be shorter than the October one.