The image is a little unnerving, but the notion that even a “dead cat” can bounce does a pretty good job of scaring most folks away from market declines. That image along with the “falling knife” metaphor keeps them away, while others stay in game because they think that when there’s “blood on the streets,” that’s when real fortunes are made.
And then there’s the notion of the “volume confirmation day,” that the bulls eagerly anticipate, which gives validation to the reversal that the bounce creates. TVO and IO stood still on Thursday (both had the same values as Wednesday), so not much happened in terms of a confirmation day… But maybe that day already happened. From a volume standpoint, there was more than enough weight behind the 5/15 breakout attempt (an across-the-board accumulation day), and perhaps the subsequent drop was just the “shakeout after the breakout,” (Yet another actual cliché) a move that has become so anticipated that it has to keep getting more and more severe in order to do its job of shaking out the weak hands.
In any case, the cat is now “out of the bag,” so if the bears can be kept at bay in the short-term, TVO will likely change course back towards zero which means a potential shift back to “buy” mode… with the next gap fill on SPY waiting just overhead. -MD
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