It’s official. July was NOT the bottom. Today marked a new low (in a number of ways) for the S&P 500. One measurement that isn’t as extreme as at the July bottom is the number of new 52-week lows today on the NYSE. Some may see this as a positive divergence. I did a study a few months ago and found the divergence to be unreliable.
Since that study there have been 2 new such divergences where the S&P made a new low but the number of new lows contracted. The 1st was 3/17/08 which led to a decent rally that ultimately failed. The 2nd was 7/7/08. The market sold off for another week before starting a rally that would quickly peter out and has now failed.
In preparing for Tuesday, traders may be well served to review some of my Fed Studies – in particular “When the S&P is Oversold Going Into a Fed Day” and “How The Market Might React To The Fed”. This last one was written in anticipation of the Fed meeting on the Tuesday following the Bear Stearns debacle…sound familiar?