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VIDEOIs This Morning's Gap Open Bullish?
By
Rod David
Jul 29, 2010 9:05 am
An overnight rally is indicating this morning's open to gap up -- right back to yesterday afternoon's highs.
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My (S&P futures) 1108.50 and 1118.00 targets for this leg of the rally are similar to Todd Harrison's 1115 area. I expect this area to launch the next downleg, and I expect big things from it. Bigger turning points are messier. As more and more buyers become sellers, weight distributions shift unpredictability. Price begins to drop sporadically, propped up by late-comers.
Late-comers are attracted by a variety of things, and a lower price is only incidental.
Perhaps more important to them is the drop's relatively slow rate of descent. Little of the rally was retraced during the past two days. Indeed, Tuesday's decline was only a retracement of the open's big gap up. The session still closed positive. Wednesday's session-long drop barely accelerated until late-afternoon.
Also more important than actual price is the peak's abruptness. Tuesday's big opening gap up reinforces the perception of a bullish environment. Tuesday's net positive close helps to promote optimism, despite that close being under Monday's highs. And despite Wednesday's session-long drop, S&Ps closed barely eight points under Tuesday's high close.
If we're agreed as to what stage this market is at, then now we're just haggling over timing. I'm reluctant to get very bearish while there's so much "unfinished business" above. The gap back to Tuesday's 1116.50 opening gap, the 1118.75 pre-open high -- even a retest of my own 1118.00 target for the rally, which has yet to print during regular trading hours.
None of these higher attractions absolutely require another test. It would just be helpful and more normal before a downleg gains traction. And this downleg is still being prepared, so things are still messy. What better place to absorb a last-gasp attack on prior highs.
So an overnight rally is indicating this morning's open to gap up -- right back to yesterday afternoon's highs (thanks, late-comers!). Failing to recover yesterday afternoon's highs through this morning's open would suggest the last gasp had already gasped its last.
In pre-market trading, some stocks are gapping higher. The financial sector shows ING (ING) up 3.8% and Barclays (BCS) up 1.8%; in oil and gas, SeaDrill (SDRL) is up 2.2% while Transocean (RIG) is up 1.0%; and in metals and mining, BHP Billiton (BHP) and Rangold Resources (GOLD) are up 1.8% and 1.2% respectively.
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No positions in stocks mentioned.
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