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The Significance of Yesterday's Ascending Markets


If the internals strengthen, look for robust trading conditions; if they weaken after the slew of distribution days, then be concerned.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

"Life is like a grindstone -- whether it grinds you down or polishes you up depends on what you're made of."

-- Author Unknown

Yesterday's ascent was unique; it was the first significant day since the gap after the weekend on May 10, which had been sold into. Unlike the earlier move, this move began from a cluster of deeply oversold conditions. Such clusters have been seen in every bounce since March 2009, as I've shared several times during the course of this decline (and previous declines).

This is also an important move coming after six (almost seven) significant distribution days since April 16 -- so we can be assured that it's going to be under a microscope. If the internals strengthen, we can look to robust trading conditions; and if the internals weaken after the slew of distribution days, then it would be a matter of concern.

On an actionable front, I shared some Fibonacci retracement levels yesterday (Please scroll down to see the Fibonacci Retracement Levels from the Buzz & Banter yesterday.) Weak bounces can be exhausted by the time 50% retracement levels are reached.

Meanwhile, here are the NASDAQ levels for trading radar. After price has "walked the lower Bollinger bands" for a while, in my experience, it usually finds first level of resistance at the mid-point of the bands, which is 20-day MA, and incidentally the vicinity of the January highs.

Fibonacci Retracement Levels
(May 27, 2010)

"The vision must be followed by the venture. It is not enough to stare up the steps -- we must step up the stairs."
--Vance Havne

Here's another look at the possible targets using Fibonacci retracement levels.

There are two more things to remember.

First, a "weak bounce" usually fails at or below 50% retracement.

Secondly, the moving averages change values everyday, even if by a few points. For instance, 200-day is rising (working in higher current numbers and deleting smaller numbers from July 2009). So, it's important to keep the idea, rather than the absolute numbers on your radar.

Buzz & Banter: Real-time trading ideas from Smita and 30 other professional traders. Free trial.
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