Yesterday the bears woke up, and today it looks like they walked into a trap. We have all the ingredients necessary for a key reversal day: a break of a key support level, a sudden reversal, and a close above the open, and very high volume. The other indication of a key reversal: I sold my last remaining open positions, most at a small loss, minutes before the reversal, so if I sound a little ticked off, that's why. As for the reason for the reversal: the usual suspects. A Fed-head (I believe is was that tool Kohn) dropped a big hint that QE 3 is coming. We probably won' get the official announcement for another month, but he sure stopped the market drop right in it's tracks.
The Nasdaq sid not come anywhere near the panic low, another indication that the market wasn't ready to crack yet. We are still on a red bar on the Elder impulse chart, but if tomorrows MACD histogram is less negative today, that is a pretty good indication that we are going to go higher from here. If not, then I sit oh my hands some more.
The Russell 2000 made a nice stick save, but is still in trouble, It is pennies above critical support, and will probably face some stiff resistance on the way up. The next critical test will be at the 200dma, and it ight face some pretty stiff resistance there.
Here are how the sectors have [performed since the market topped out in late April. XLK is the only surprise here.
XLK is also this week's strongest as ranked by RSI, so it was in the last week that it gained most of it's relative strength, ironically while dropping. It also got one of the biggest bounces today on the reversal.
XLV is now the weaket sector, and that also came in the last week. It has really taken a beating recently, for reasons I do not know, but there is definitely something wrong here.
Whether or not today is an actual key reversal will not be known for a few more days, but it does have all the characteristics of one. One good way to determine that is to look at how some of the leading stocks behaved, especially the high volume advancers and decliners that I post from the relative strength list. I will have that along wth the new highs list shortly.
2 comments:
I also got shaken out in the middle of the reversal. (I wanted to make back some of the extra I lost beyond my stop loss). I wish I was flexible enough to kick myself.
Eddie from up the 15.
Hi Eddie,
I don't feel so bad this morning as it looks like I made the right decision, but my timing was off. Last time I felt like this was September 2008, just a few days before the market crashed. I'm more concerned with not losing money than making money, so i think I will sit this one out for a while.
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