Waiting for Another V-shaped Bounce

 | Aug 26, 2013 | 8:28 AM EDT  | Comments
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,

tsla

The four most dangerous words in investing are 'This time it's different.'" --Sir John Templeton

The big question this week is whether the market can put together another V-shaped bounce. We had a slow start on Thursday and Friday but that is the way these bounces have tended to develop. We start off slowly on light volume and then steadily go higher which confounds all the folks who don't expect the oversold bounce to last.

The last week of August is one of the slowest times of the year, which makes the whole issue of a V-shaped bounce even more difficult. Quite often in a light- volume environment, the bulls will have greater influence and can walk things up. We see that occur during holiday trading quite often.

The bears will argue that this time it is different, They will say that the bulls are going to be disappointed if they think we are going to recover like we did in late June and July. First, seasonality is negative, but more importantly, the issue this time is rising interest rates and a less supportive Fed. It has been the Fed that has been the primary driver behind these V-shaped moves and this time they aren't going to be supporting the market in the same way as the tapering process is debated.

The bulls are showing some signs of optimism and have been quite aggressive in going after many of the momentum names like Tesla (TSLA) and Facebook (FB). There are a surprising number of individual stocks showing good relative strength even though the overall technical picture of the indices is not all that great.

I'm going to give the bulls some room to produce this V-shaped move. I'll stick with long positions that are acting well, but I'll keep stops tight and will be quick to exit if things start to soften.

I'm going to take some time off this week to deal with some personal matters and to recharge a bit, but I'll be checking in.

Good luck and go get 'em.

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