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June 13, 2006
The Emotional Low
From an article at TheStreet.com comes a new term in technical analysis: the emotional bottom.
Several strategists believe an "emotional" bottom for U.S. equities has already occurred, and the stock market is struggling to break out of the doldrums. Mary Ann Bartels, technical research analyst at Merrill Lynch, believes the emotional bottom was reached last Thursday when the market sold off throughout most of the day, but rebounded sharply in the last couple of hours. Once done, however, market indices are likely to test previous highs, she says. Thursday's action "indicates an emotional day where sellers may have become exhausted and buyers are beginning to take control," she writes, adding that markets may take several weeks to build a "successful bottom."
Say What?!
Thursday’s low was not a real selling climax and not even a reversal. Yes, there were a number of hammers, piercing patterns and bullish engulfing patterns last Thursday. However, these formed with two hours of selling pressure (10-12) and four hours of buying pressure (12-16). Buying pressure fizzled on Friday and this showed just how weak the “emotional” low really was. Let’s try and leave the emotions out it – shall we.
Posted by Arthur B. Hill at June 13, 2006 10:29 AM