Wednesday Weakovery – Indexes Fail to Bounce, Held Back by Weak Earnings


That's the weak bounce line on the S&P 500 and, as we predicted in yesterday morning's report, that's right where we ended up, though it was only due to a "stick save" into the close, which popped the S&P up to 2,881, but this morning, when we're back to 2,861 because that 20-point afternoon surge was nonsense – meant to entice retail traders into buying the dips (while the big boys sell into the bounces).  

That's what our 5% Rule™ is for – to prevent us from chasing false rallies or panicking over normal corrections.  The 5% Rule™ works best when bots are doing most of the trading and that's a trend that's worked well all decade and should continue to do so as we begin to look forward to the next decade as well.

Yesterday morning, in our Live Member Chat Room, we calculated the bounce lines for the other indexes as well so, to summarize here (green or red determined by Futures at 8:30 am):

  • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
  • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
  • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
  • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

Before we had our Big Chart (thanks StJ), we just had the little spreadsheet in the corner of the Big Chart and that's really all you need to gauge the health and we simply count the red and green boxes and, if things are getting redder, the market is getting weaker and if things are getting greener, the market is getting stronger and anything that happens in-between those lines is meaningless.  

Of course, the above bounce lines are just measuring the short-term action but we also apply them to weekly and monthly charts so we are able to plot our trading ranges over years of time.  Another big factor in why the 5% Rule™ is so accurate is because, at the heart, it's based first and foremost of the FUNDAMENTAL
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