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Charts courtesy of stockcharts.com

Thursday, October 6, 2011

Rally Attempt Day 3





 Stockcharts came back up just in time, so today's post is a go. here we have a third day in a row of big gains for the indexes, although on shrinking volume, but none of that is relevant until tomorrow, day 4 of the rally attempt, which is the first possible follow through day. if there is a blessing in disguise in today's relatively low volume, it is that it will be easier to beat. The SPX has some momentum now, but it is also heading into the resistance zone, which is now dropping along with moving averages. The first hurdle will be the declining 50dma (here it is the exponential), but even breaking through that will leave plenty of resistance above. Tomorrow's NFP, if it is favorable (and how that will happen I have no idea), could give the market the juice to get through all this. If so, we are going to rally for quite some time. If not, expect another drop down to 1100, and possibly beyond.

 The Nasdaq 100, weakened considerably during the last down move, now appears to be building at least some of that strength back. This has both the 50 and 200 to fight through tomorrow, but is is entirely possible it gaps right over them.

The Russell 2000 has made a huge move in the last 3 days, but that was after being by far the weakest of the averages. this smells a lot like short covering, but until proven otherwise, I will assume it is a genuine rally attempt.

One reason for my sudden somewhat bullish stance is this, the percentage of stocks above the 50dma. this has finally gotten above 30, and if it can stay there for more than a couple of days, really has a good chance of getting back above 50 and into bullish territory. if we get a fllow through day in the next few days, this will confirm it. The higher low this established last week is also a bullish sigh, but the fact that the two dips are only about a month and a half apart have me somewhat concerned: a normal bear market bottom takes longer than that. Either "this time it's different", or I am just not correct in my interpretation of this move down as a bear market.

We have non conformation on the NYSE. Even dis-allowing for my "fudge factor" of 5 points (based on historical studies), this is still below 30, and even below the previous high. i'm not sure how significant that is going to be, but I will be keeping an eye on this to see if it starts playing catch up, or if it is setting up a bull trap.

We appear to be on the verge of starting a new bull move, of course with no knowledge of hw long it lasts or how high it goes. It could end as soon as before the open tomorrow, if the NFP really stinks, but expectations are not very high, so even a lousy report (but not as lousy as expected) can trigger a follow through day. Unfortuantely, there are not many leaders setting up in bases ate the moment, which leads me to believe it will be a short, sharp rally. Ultimately, the market is still range bound, and is going to have boatloads of reistance on the way up, so if the buyers don't come in big, we will probably crap out right where we have for the last 4 rally attempts.

I will have the new highs update shortly.

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