The stock market has either placed a significant bottom on Wednesday of last week or a small base is being formed before another push lower. With most sentiment indicators looking extremely bearish (which is good for the market) and with record volume on the reversal day last week, we believe that the bottom is already in.

There was an enormous amount of indecision last Wednesday. Usually a reversal will begin after churning occurs, which is high volume in a consistent range. This is what occurred last week, and a major factor in us believing that the pullback is over.

Today we have charts of QQQQ, SMH, IWM, and the NASDAQ Composite.

If this market did bottom last Wednesday, it is quite possible for a base to form before the move higher. With volatility high (measured with Bollinger Band Width) we could certainly expect sideways action to precede the upmove. You can see how high volatility is in each of the four charts below. We do expect volatility to begin to decrease and this should coincide with the building of a base. In addition to the Bollinger Band Width indicator, each of the four charts below have support lines drawn. These are the lines that the indices have to stay above if we are to believe that the market is prepared to reverse, as opposed to having another move lower. As long as the indices stay above the lowest support line, the low from Wednesday of last week, we can assume that a base is forming before a strong reversal.

You can also notice the strong volume from last Wednesday on the four charts. This powerful reversal day will most likely prove to be the bottom of this correction.

Take Care,

Stephen Brown
Founder of Nasdaq Wizard, LLC