What a real bounce looks like

By Colin Twiggs
August 15th, 2011 10:00 p.m. ET (12:00 midday AET)

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What a real bounce looks like

Question from Flint:

If this is an example of a dead cat bounce then what would we look for in a real bounce....

The best example I can find is the mini-crash of October 1997. The Dow gapped down sharply following a fall in Asian markets, but met with strong buying support the next day. The total correction of 12% did not reach the 6400 level from start of the year. The long-term rising trendline was not tested and 63-Day Twiggs Momentum declined but failed to break below zero. Volume doubled in the week following the crash, confirming buying support.

Dow Jones Industrial Average 1997 Mini-Crash

India Singapore

India's Sensex Index closed lower Monday on average volume. 13-Week Twiggs Money Flow continues below zero, warning of selling pressure. Breakout below Tuesday's low of 16500 would confirm the decline to 16000*.

India SENSEX Index

* Target calculation: 17500 - ( 19000 - 17500 ) = 16000

The Singapore Straits Times Index fared better. Recovery above 2900 would indicate a bear rally, but resistance at 3000 is expected to hold.

Singapore Straits Times Index

* Target calculation: 2800 - ( 3000 - 2800 ) = 2600

China Momentum v. Money Flow

The Shanghai Composite displays a similar bullish divergence on 21-day Twiggs Money Flow to the DJ Shanghai Index. Follow-through above 2660 is likely, but resistance at 2820 is expected to hold.

Dow Jones Shanghai Index

* Target calculation: 2600 - ( 2800 - 2600 ) = 2400

The Hang Seng Index shows a similar (Twiggs Money Flow) bullish divergence to the Shanghai Composite, but both display a sharp fall on 63-day Momentum below zero....

Kiwi 50 face strong selling pressure

The NZ50 Index is retracing to test 3300, but 13-week Twiggs Money Flow deep below zero warns of strong selling pressure. Respect of resistance is likely, followed by another test of support at 3100.

ASX 200

* Target calculation: 3300 - ( 3600 - 3300 ) = 3000

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn.

~ Jesse Livermore in Reminiscences of a Stock Operator by Edwin Lefevre.