Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
For those who follow the Investors Business Daily framework today is a +1.7% day which is part of the process needed for a longer term bull move but the timing is incorrect. Since sharp drops sometimes lead to sharp reversals back up very soon immediately after, anything 1-3 days after a “day 1” of a rally is not applicable. And that is the case today, as Friday was a distribution day, Monday was (barely) a “day 1” of the rally and we are seeing this action only 2 days later. The window we want to watch for a +1.7% day is this Friday through the Monday a week and a half later (days 4 through 10).
That said it’s a solid day for bulls and I am surprised something that was ‘obvious’ (“hey we are going to be rescued by central bankers mid week so therefore the market must go up!”) did play out. I do think the Spanish bank news was the key today, although it is not being discussed much from what I can see. That is a salve (not a cure) for some of the issues in the region. The dollar and U.S. bonds both are getting hit which definitely are needed in a highly correlated market.
Technically speaking, this move has the potential for some upside to perhaps 1320s before it starts to hit serious resistance. A move over the highs of last week (yes just last week) of 1335 would be something that can be more of a change in complexion in the intermediate term as we’d have the first “higher high” since the correction began 2+ months ago.
For all the rah rah and emotion out there (which always happens on strong up days) the market is only back to where it was last Thursday.
If you are in the technical analysis 201 class, you might also make the case if the market can just go sideways/a tad more up for say 7-8 days a bullish inverse head and shoulder formation could just be beginning to form (head formed on that spike down Friday). I marked that potential situation with a box below to the right of the main chart below. Always good to see both sides of the trade – bull or bear. But for now the market is in “prove it to me” mode.
[click to enlarge]
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