*Special* Pain Looks to Be on the Wane

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Not much more. That's right, if I had to guess -- and trust me, anything more than a day or two out is a guess -- I'd have to say only another 5% or so down. I don't care if the market goes up a bit immediately, or is already down 5% more as you're reading this: Just a bit more pain and I think we'll be out of the woods.

Okay, my rationale? I build it from both a macro and micro perspective.

First the macro, and that's the indices. If you take a look at the

NYSE

, the

Nasdaq

or the

DJ 30

, all look like there might be support about 5% below where we are now.

Fortunately, they all kind of line up that way, so at least they're confirming.

Second, if you're a believer in trendlines, then you can extrapolate one across the bottoms of the A/D line and see there's only a bit more to go. Kind of a rough cut, but that's life in the crystal ball business.

Okay, that's the macro stuff. Micro? Well, there's one key area for me: My short candidates drying up. Yep, as I've noted in a number of columns, I trust my own methodology to give me signals as to the strength of the market.

Along those lines, a few weeks ago I was pumping out five or six new shorts per day. The past few days, though, I'm down to just one or two. Having done the same kind of short trades over and over, I know full well I always get most of my shorts at the beginning of the bleeding. When I'm down to one or two, though, it's usually either the end of the carnage, or a temporary lull. I'm uncertain at this point, but given how the indices look, I'd say we're near the end.

Now, I'm not ready to start buying yet: My last long was on July 27, and I still haven't had any new ones. But, maybe soon. In fact, someone last night on my

Yahoo!

chat asked why I hated the long side. My response was that I didn't hate the long side, I LOVED the long side. But, if no candidates present themselves, I'm certainly not going to force anything. Still, my gut says we may be close.

Okay, let me put it all together:

1) Index charts that say another 5% down.

2) An A/D line that may find a bottom soon.

3) A lack of my own short candidates that confirms a lot of the carnage is over.

There. That's my succinct market overview, and it certainly keeps with my KISS philosophy. Am I 100% certain? Of course not. I'm a trader, though, so I just calculate the odds and place my bets accordingly. And the odds to me say there's only a bit more pain left.

Gary B. Smith is a freelance writer who trades for his own account from his Connecticut home using technical analysis. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes Technician's Take, which appears every Monday; Charted Territory, which appears every Wednesday; and TSC

Technical Forum, which runs Saturdays.