A Successful Test Of The October 10 Lows or "Everything Is All Right So Far!"

Yesterday, Friday morning, October 24, I awoke with the news that the S&P 500 Index Future had traded at a 5% preopening limit down, with the Asian markets having closed down 8-10% for their trading day. My immediate thought was "Fasten your seatbelts! We are going to test the October l0 lows!"

In my October 16 posting entitled "Puking Redux", I discussed the criteria I analyze to determine if a retest of a major low is successful. In order of importance -- breadth (number of new 52 week lows), volume, and price. At the end of trading yesterday, here are the comparisons with October 10, the recent "capitulation" day:


October 10 October 24

Number of 52 week new lows: 2901 1125

Composite volume: 11.2 billion 6.5 billion

Intra-day low price 840 853

Closing price 900 877

While yesterday's intra-day low was within 2% of the low on October 10, the number of new lows was less than 40% of the new lows on October 10. This reinforces the notion that a breadth climax occurred on October 10. Furthermore, the volume yesterday was less than 60% of the volume on October 10--evidence of a volume climax as well on that date. The pricing was mixed, with a lower closing price yesterday but a lower intra-day price on October 10. However, pricing is the least important criteria of gauging a successful test. My conclusion is that yesterday's test was, indeed, successful.

To be sure, none of this rules out further tests in the future. After all, the percentage bears, at 54.4% last Wednesday, hasn't yet reached the threshold 60% level I consider very important. Also, disconcerting are the rumors that some very large hedge funds are in trouble.

With respect to the monies I have earmarked for equities, I am now five-sixths invested. Unless Monday's action indicates another test, I shall complete my buying program then.

I am reminded of the story about the man who jumps from a skyscraper and at each floor is heard yelling "Everything is all right so far!" At the end of each trading day, I feel like that guy!