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Heard This One Before?

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The longer that the market consolidates yesterday's surge, the less likely that it will resume the rally.

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The past several weeks have produced some very interesting relationships. Some are insightful, others are just fascinating. One example is yesterday's rally, which was one for the record books. So was the rally exactly two weeks earlier. But even more interesting is that each rally's gain was nearly identical in the broad-based S&Ps, 29 points from the prior session's close. And so was each rally's 39-point gain from the prior session's low.



Also interesting is that each rally was signaled by the prior day's "Gotcha!" setup (a.k.a. "Fat Lady"), in which a new trend low intraday is recovered to close above prior sessions' lows.



The symmetry is fascinating. The insight is that the market abhors symmetry. Stated another way, two consecutive rally legs are the product of two separate groups of buyers, and their motivations aren't likely to be identical. The first rally was driven by bigger risk-takers that were willing to buy a low; yesterday's "repeat" was a relief rally in reaction to FOMC news that was friendlier than its expectations. With different personalities dominating each rally, this week's instance is unlikely to enter another consolidation that resolves in another upleg. That still leaves several other possible outcomes, but at least we know what the market isn't likely to do if it were to develop another consolidation here.

Several other patterns that developed in the interim help to further reduce the list of possible outcomes to this upleg. Some rely upon the same process of elimination described above. Others have their own definite expectations. It isn't known whether either is accurate until the dust has settled on its resolution. And there's always something to be learned from patterns that fail.

But one thing we already know is the longer that the market consolidates yesterday's surge, the less likely that it will resume the rally.
No positions in stocks mentioned.
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