One More Flush

Setup for Mutual Fund Monday.....

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The action in 2007 is eeriely similar to what we are witnessing today:
- big 85+ pt drop
- hammer reversal
- low volatility run-up to new contract highs
- volatility expansion that leads to an even bigger drop
- 50d EMA rolling over, but 200SMA still rising.

Back in 2007, NYMO peaked first, and then put in a higher low (+ve divergence). That, along with a high volume white candlestick marked the short term bottom.
So, here's where we stand today:


- big 100pt drop
- hammer reversal
- low volatility run-up to new contract highs
- volatility expansion that leads to an even bigger drop
- 50d EMA rolling over, but 200SMA still rising.

However, NYMO has not yet put in a higher low. Also, on Friday we had a 40pt selloff, but no bullish response to it (couldn't close above 1122.75). So I don't think the short term bottom is in yet.

We could see new contract highs after this correction. My rationale is that the 200SMA is rising, and this is the very first time it has been tested.
However, my own analysis based on past corrections (Aug07, Jan10) suggest that we could see one more capitulative flush down before we march on to new highs. Certainly the current downtrend of lower highs and lower lows needs to be broken before any meaningful rally can take place.

As for Monday, well, I think we will conform yet again to Mutual Fund Monday (+88% chance of close > open). But I think it will be a dead cat bounce that does not affect current market structure.