The market finally had a major distribution day with the SPX losing 4.28% today.
To many chart readers, this was an easy short:
-> The wedge price pattern was converging
-> Strong resistance was expected at the 875 level.
-> The market was over-bought to a level rarely seen in the
market across a variety of technical indicators.
A lot of observers feel that this was a vicious bear market rally, powered by beaten down stocks in sectors with weak fundamentals, which has now run its course.
Though I too have a short bias, I am a bit reluctant to call the rally toast. From the chartist perspective, we have not seen what we could call a definite topping pattern like a Head and Shoulders, a Double Top, a Climax Top or an Island Reversal. Further it may be a bit premature to assume that the Coordinated Cheerleading being orchestrated from Washington, is coming to an end; some bearish articles or research rep
orts not withstanding.
Several indicators, including the all important Jobs Lost are showing sings of improvement and stability.
Whether these are just a pause in a continuing slide or the sign of the bottom is far from certain.
But if this stream of better than expected economic indicators continues, the rally might not die.
Though the overall earnings situation has been mixed, the technology sectors, especially the more high-profile names are doing quite well, given the circumstances. Both Intel and Tex
as Instruments talked about the end of the inventory glut and a return to more normal demand patterns.
IBM reaffirmed its guidance with an upward bias.
But perh aps the most signific
ant factor which might help propel the rally forward, is that there are a lot of investors who missed out the move from the March lows and are eager to get in.
A conservative trader I follow, bought the financials (XLF) on the dip today.
He is quite clear that it is a not a long term hold, not even a position play; but as a trade he is willing to take a swing. His position was partially influenced by the fact that he had refrained from trading the wild moves in banks in the past, but now sees enough momentum and interest in the stocks for him to feel comfortable to trade the swings.
As the chart shows, the SPX is still in the upward sloping channel. Bye
Bye Wedge, Hello Channel!