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Wednesday, December 3, 2008

IBD Confirms rally

As I mentioned this morning, unnoticed by me, yesterday was a follow through day, coming on day 7 of a rally attempt, so today IBD has the market in a confirmed rally. However, the bottom callers are still out there, so this may not be "the bottom". As with past rallies this year, this is a bear market rally until proven otherwise. The first test for the SPX is 896, and if volume stays relatively high like today, we have a very good chance of getting above it. However, the last two times the SPX has challenged RSI level of 50, it was turned back, and is approaching it again. However, the divergence in MACD is telling us that we have some pretty good upward momentum here.

The Nasdaq got an even bigger boost in volume, and is now just under an important pivot at 1493. It is critical to get above that and challenge the previous high at 1535. The Nasdaq has also failed twice at RSI 50, and also has the MACD divergence.

The Russell 2000 has quite a bit of resistance to get through, but may challenge the 50dma soon.

Here are the relative sector performances since November 21. The financials are leading the rally. They led the last two rally attempts, which both failed miserably. I suspect that without substantially more support from both energy and basic materials, this rally will struggle too.

Paulson has a plan to save the housing market by pushing down mortgage rates, which might explain the collapse of treasury rates. This is doomed to fail because housing prices need to come down to affordable levels, and there will be one hell of a backlash if homeowners who have not yet defaulted on their mortgages (but will) keep their homes, while those in foreclosure now or who have already lost them get nothing.

On the earnings watchlist, AVAV reported after hours today and is trading up about 7% in after hours trading. DMND, not on the earnings list but prominent in recent relative strength scans, also reported and is trading down 7%. I will have a new highs (verified this time) post later tonight.

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