There's only one thing on every traders mind going into the late week trade....Is this a retest of 10/10 coming and will it be successful ?.
Here's some facts,
86% of bottoms have a retest. 75% of retest windows will pass by 11/23/08. A large number believe the “low” was set on 10/10, when the S&P 500 fell to 839 intraday, representing a 46% decline peak to trough. If 10/10 indeed proves to be the low, a retest is almost a certainty. Since 1900, retests are the norm, occurring 86% of the time. Applying those past retest windows to the 10/10 “low,” we arrive at some dates that could be important. By 10/26, we passed 25% of retests. By 11/23/08, we should have passed 75% of retest windows. The furthest out to see if 10/10 holds is to 1/22/09, which is the 2002 lows. Three bottoms had no retest, 1917, 1942, and 1949.
If history of retests can be used as a barometer, it supports a mid/ late November rally. This also coincides with the probable receding in the intraday hi-low ranges that is essential in calling a bottom. Why?.....The surge in intraday volatility above 3% has been associated with the major lows of 1987, 1998 and 2002. We've been in the 6% range since October and only recently have seen this drop off. Is it enough to bring the institutions/ fundamental investors off the sidelines?. That's the big question and we'll only know after a successful retest.
Finally, the 45-day redemption window for some hedge funds is 11/15 and this can play a role into any rally. This issue has been discussed constantly this week putting fear in many. Investors have been watching this window carefully for obvious reasons. To the extent that funds have anticipated redemptions, this explains some of the selling we are seeing. Additionally, no investor wants to add risk during a time when there is such an imbalance of sellers. Thus, investors are likely to wait for this window to clear before adding risk. Unfortunately, a large number of hedge funds have 30-day redemption windows, which means additional redemptions could be seen then. Judging by the beatings taken by Solars and many material/ commodity today, liquidations are ongoing.
Let's hope history is on our side....