Morning Cup of Jo: The Clouds Have Lifted, For Now
With all the confirmation levels given over the last few days we definitely know where the line in the sand is.
- Dow Jones Industrial Average has nicely bounced off the 10,700 level and is potentially creating a stochastic divergent bottom. Note the light volume however.
- The RUS is actually the best looking chart of all sisters and could potentially lead to the greatest short-term opportunities.
- From a technical standpoint, there remains to be much overhead resistance to contend with. Nonetheless, after Tuesday's reversal day where the markets managed to hold on the one yard line and Wednesday's follow-through, the risk level has certainly diminished for the bulls.
A blow horn of relief was sounded for the bulls yesterday morning when Federal Reserve Chairman Ben Bernanke's written testimony became public. Up until then, financial institutions and individuals alike continued to grapple with the question of whether or not the markets would toe-the-line and abate this latest sell-off. There were plenty of metrics (geopolitical, economic, earnings and inflationary) stifling the buyers and keeping them at bay.
The most recent wave of selling evident in last week's downturn of the "Four Sisters," although dropping sharply, had yet to show the same level of contrarian market internals as witnessed throughout the course of the June bottom. This, combined with various other technical "Road Signs" gave wind of a possible bottom forming and kept a glimmer of hope for the bulls.
Once the testimony was released, so were the hounds which chased all the bears that were short back into their caves, as least for the day. However, if there is further negative news out of the Middle East, there is still a high probability the markets will continue very choppy. As you may well assume my firm's "Eye on the Ball" section above has changed quite dramatically since last week.
The Dow Jones Industrial Average (DJIA) nicely bounced off the 10,700 level and is potentially creating a stochastic divergent bottom. The only concern with yesterday was the absolutely lackluster volume, which I contribute to a short squeeze rather than true institutional buying.
The S&P 500 (SPX):
The Nasdaq 100 (NDX): This chart doesn't resemble any of its sisters and remains to be the ugly duckling.
The Russell 2000 (RUS) is actually the best looking chart of all the sisters and could potentially lead to the greatest short-term opportunities. Again, there is a concern with the volume, but with the horizontal support and potential stochastic divergence, any sort of pull back could provide a decent risk/reward trade.
From a technical standpoint, there remains to be much overhead resistance to contend with. Nonetheless, after Tuesday's reversal day where the markets managed to hold on the one yard line and Wednesday's follow-through, the risk level has certainly diminished for the bulls. With all the confirmation levels given over the last few days we definitely know where the line in the sand is.
FYI: If the levels tested on Tuesday morning are broken, for whatever reason, expect a wave of selling pressure in the form of program trading and individual investors looking for the exits. This would also equate to the 3-year trend we've been discussing being broken. As for now, the clouds have lifted. Happy hunting and be careful with the ugly duckling equities.
Stay tuned & good luck!
Until next time…
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