Monday, December 01, 2008

Small caps lose 11.85%, worst day in years

The title says it all, here's a link. The headlines are blaming this on the official recession call that was made today by the NBER. Of course this news is no surprise to most market watchers. CR at Calculated Risk has been using Dec 2007 as the beginning of the recession in his charts for more than six months now. Furthermore, we saw the stock market slip into a bear market just one month after the recession officially started so the market has been telling us we are in a recession for a while now. This is yet another triumph for the power of technical analysis. The charts told us what we heard today from the NBER, but 11 months ago. Today's selloff was the result of a declining volume rally up to resistance in a long term downtrend. In other words, it was purely technical.

As for this sell off, I still think IWM won't have any trouble getting to the lower end of this falling wedge around $40 but we are most of the way there. I'd expect a good bounce from there and at some point soon we will see follow through into a significant multi month rally. This declining volume falling wedge is setting up for a very big rally to begin sometime soon.

Disclosure: I started an IWM call position at the close today.

1 comment:

CS said...

Nice, right on the money.