Reversal days on the chart signal the final exhaustion of the bullish or bearish forces that drove the market previously. Wait for the fat pitch when timing is right. There is nothing more important than your emotional balance. – Market Wisdom
- First of all, I wish everyone has had a great Thanksgiving holiday!
What a wild ride we have been through especially since November 6th – the Presidential Election day!
The S&P 500 dropped over 75 points in eight straight sessions since then until it had an outside reversal day on Nov. 16th which was the option expiration Friday with huge volume, ending the two-month correction for at least the short term.
By last Friday on Nov. 23rd, the U.S. market has been up sharply for five days with each index up nearly 1.4%, the S&P 500 closed at 1,409.15, and SPY at 141.35. SPX has retraced back its 50% of total loss occurred in previous two months. The volume has also dried up partially due to the shortened Thanksgiving week.
Among the leaders we keep eyes on: AAPL has bounced well to 572 last Friday from as low as 505 when it had a capitulation selling followed by a bullish reversal bar, now facing near-term resistance level 572-580; GOOG now at 668 has had mild bounce, not too exciting for longs; although benefited from holiday online shopping, AMZN closed at 239.88 or at its 100-day SMA line, and it could challenge its next resistance level near 243 or its 50-day SMA.
IBD resumed its market outlook from Market in Correction to Market in Uptrend. But being a trader, it’s hard to chase a sharp bounce which has been on decreasing volume and the lack of big guys’ participation in rally when SPX seems to face the next resistance area not far from the current level.
The V-shape market bounce can be explained as an elastic band effect: the further it is stretched out, the harder it rebounds. (As a female, I use elastic bands a lot for my hair and I also used to play with them during my childhood)
It’s worth pointing out the following:
- Market has gone through two months of correction from mid September to mid November with the internals improving in most sectors recently; Rotation is going on when beaten down stocks are alternatively bouncing to keep market alive; seasonality should be in favor of a potential Santa Clause rally. Meanwhile, some laggards have been up from their multi-year/month lows, such as RIMM, NOK, MCP, NLFX, FB, etc.
(But I’m not sure it’s an absolute good sign as dogs are flying.)
- The market bounced in a fast and furious fashion with next resistance levels near. Former growth leaders are still weak technically despite their bounce seen in AAPL, GOOG, MLNX, CRUS, IBM, etc. Tax related selling might put pressure on the further recovery. The oscillator now shows an overbought reading from an extreme oversold level six sessions ago when I pointed it out with an illustrated picture in my Twitter picture section: here is the link: http://pic.twitter.com/25uTzNyQ
Finally, it’s good to raise stops if you are long, and keep power dry for better entries levels if the market pulls back well. Always be flexible and open-minded with any development of price action.
Best luck on trading!
Here are a few charts to share: