Bleeding Stanched, but Only for Now

There is an old story that I am told is not fiction, that a legendary speculator called Philadelphia Phil appears on the floor of the exchange when he smells "blood on the Street." As the story goes, Philadelphia Phil opens his wallet and starts to pick up bargains at that time.

I do not know if Phil came to buy on Tuesday/Wednesday, but I believe he or at least his brother may have shown up to rent for a while. Certainly there was blood on the Street.

Whether or not the blood over the last month is just a first taste of blood for the bears in a series of bloodbaths to come remains to be seen. However, I believe that ultimately the cycles do point lower. Whether or not Wednesday's tourniquet has stemmed the tide for more than a one-to-two-day bounce remains to be seen.

The market bottomed as expected, when we expected, and at the price that we expected -- at least for the short term. The parallel channel that I showed yesterday, which identified a third wave down into 1220 as support on the S&P 500 stemmed the tide of the downside momentum -- for a while at least. The S&P respected the 1220 level being 270 degrees down from the high.

The best thing about Wednesday's action, in regard to the prospect for an upside continuation, is that the day backed and filled without taking off to the races immediately.

Wednesday's action is testimony as to why, if you want to be a trader, you need to use technical analysis. There was nothing in the way of news of fundamentals or evaluations that was a catalyst for Wednesday's rally. Contrarily, there was more bad news on the inflation front: The S&P futures were up 7 points an hour before the open, only to get drilled into the red by the opening bell, based on a bad report on inflation.

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Jeff Cooper is the creator of the Hit and Run Methodology and the author of the best-selling books Hit and Run Trading (The Short-Term Stock Traders' Bible), Hit and Run II (Capturing Explosive Short-Term Moves in Stocks), as well as a video course, Jeff Cooper on Dominating the Day Trading Market. He also created the Hit and Run Nightly Reports and co-founded a trading markets Internet site.

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