#4 July 11, 2011. MARKET SHRUGS OFF BEARISH NEWS

Situation–NASDAQ had been in a sharp rally off the recent lows to near the highs of the entire long-term upmove, with the market making a high on a very strong up day (the recent high day on chart) on evidence suggesting the following day’s monthly unemployment report was likely to be bullish. The actual report released the next day (last day on chart) was extremely bearish basis expectations. The market gapped sharply lower on the opening in response to the report and continued to sell off to the lows of the day. Thereafter, the market steadily trended back up, finishing with a rally near the close that erased 75% of the losses from the low of the day. This was a Friday so it was also a strong weekly close. The oval highlights the price action of this day in a 30-minute bar chart. The key question is whether the market’s failure to maintain a response to negative news will turn out to be a bullish signal.

How it turned out–The market gapped lower on Sunday night and even lower Monday morning. The return to the Friday low negated any possible significance of the market’s shrugging off bearish news on Friday. Also the week action on Sunday night and thereafter was itself a bearish signal. See #5