Some Surprising Trend Day Action

May 1, 2008: 7:06 PM CST

Perhaps unexpectedly, the market gave us a powerful trend day up today.  Let’s look at it and see where it leaves us in the broader picture:

I’m showing the S&P 500 ETF (SPY) here for a proxy of the intraday action.

Markets usually start a trend day by gapping, but this trend day snook up on most traders, myself included!

The market didn’t respect its moving averages but instead plowed through these areas of potential resistance without looking back.  The only pause of the day came when price retraced cleanly to its rising 20 day moving average and then fell back to test its 50 period (standard after a large volatility move up – you get retests to deeper and deeper moving averages before a reversal occurs).

For me, the only ‘trades of the day’ occurred at the retest of the 20 and 50 period moving averages.  One could have put a ’support buy’ trade on at noon, but there was little justification in the structure to know how far price would go.  This was a day for trend-traders and was likely quite difficult for ‘fade-traders’ or other styles of intraday trading.

Where does this day leave us on the indexes?

All major US Indexes are beneath their key 200 period moving average, but the Dow is wedged right up against it with the other indexes not far from it.  We could expect a quick pause at this level, but if the market shrugs off the expected resistance moving average tests provide, look out higher because this would be a sign of massive and unexpected strength on the side of the bulls (buyers).

I wanted to highlight the DJ Transportation Average ($TRAN) again, as it soared 3.5% today.  Often, it’s said “where the transports go, the market follows.”

Price is just shy of its July 2007 closing high beneath 5,400.  A close above that level would signal impressive strength and would be a very welcome event for the bulls who have driven the market higher with great force.  Again, most of the strength comes from the Railroad stocks.

Finally, Let’s look at the sectors that did well today.

The Consumer Discretionary Sector (XLY) rose nearly 6% today!  It was followed closely by Technology (XLK up 4.2%) and Financials (XLF, up 3.5%).

From a sector rotation standpoint, this is very bullish news from these sectors.

“One day does not a trend make” they say, but these gains from these sectors occur during times of general optimism, and so we can’t take these gains for granted.

There may be more health to the market than some are seeing currently.

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Comments
  • Makes sense based on the collective outlook on the economy.

  • Insightful read. I have just bookmarked this at stumbleupon. Hope others find it as interesting as I did.

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