Monday, October 10, 2011

Possible Uptrend But Short-Term Overbought

Click on Chart to Enlarge

Today was a big gainer in the markets, however the volume came in way lower. In fact volume is at a 14 day low with the biggest price move up or down in the entire period. That seems kind of odd and possibly significant, but I don't have any stats to say one thing or another. So this is not a follow through day. Most follow-through days occur from 4-7 days off the lowest close according to IBD. Today was day 5. So we are in the sweet spot as far as that goes. Granted today was a "holiday" but that shouldn't be an excuse to count this as a sure thing follow through.

Also, for good confirmation of an uptrend, price should have exceeded 1195 today on the cash S&P 500 which it almost did today but didn't quite. This could be forgiven, but still it is not extremely convincing to me especially given the weak volume.

If a corrective low is in place, we may see something corresponding to the green projection above. If not, and the market is headed to lower lows on this move, then we should top quickly with some big downside ahead the next 2 weeks.

As far as trading opportunities, I feel a little foolish for not taking the bullish trade mid last week as the technical set-up was quite nice. From this point here is my plan: If we get a nice reversal on the hourly chart, I will post a bearish trade, but with the idea that I may exit and immediately reverse to a bullish trade if there is reversal back up on the hourly chart.

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