Probable Further Rally

Click on Chart to Enlarge

As discussed in recent posts, the markets were short-term oversold and looking ready for a rebound.  It looks like that has started today.  Based on the recent "waves" up and down I have projected a topping zone for this rally onto the chart with a red box.

I believe this rally is likely to be larger than the green line projected up from the recent low.

We can see that the MACD is just under the zero line and rising.  So it still has several days before a typical overbought signal could occur on this indicator.  I think it will probably be late next week before a possible great short opportunity presents itself.

Seasonally, the first week of November has a bullish bias historically so that may be a tailwind here into the election time frame.

Based on the continuing pattern here, I think that the final upward move since the June 2012 low may be occurring now.  The downward price moves since the Sept high have not been dramatic enough to suggest the psychology has turned clearly bearish yet.

But after this rally, based on my interpretation of the pattern, I think both a shorter and longer term pattern could be complete, which would imply a huge downside reaction coming.  Maybe the markets will sell off in response to the election results??  Certainly the time frame would match in my opinion.

In any case, from a trading standpoint, my suggestion is to look to be a seller as this short-term rally matures.  Watch the hourly charts, and hopefully the MACD develops a classic divergence to tip off a nice short entry.  If considering the long side, the recent action has clearly been a series of lower lows on the hourly chart.  So I think it wise to wait for a rally then a pullback to a higher low, followed by a technical "buy" signal if considering the long side.