Victory to the Bulls

Mar 21, 2007: 10:19 PM CST

How did everyone enjoy today’s market action? I am noticing a shockingly similar pattern to trading days where Federal Reserve policy is announced: There is sharp contraction in volatility and immediately following the action, there are usually three sudden pulses (bursts) of trending price movement.

Such days are indeed for the bold and daring, but stops can be maintained very close to the entry and price targets (rewards) – if you are willing to hold through up to three impulses – are astronomical compared to the risk you take. I must admit that I didn’t hold through the full duration of the rapid move following the announcement but I’m not kicking myself either.

I noticed the Advance/Decline line tilting decidedly positive going into noon while the market stayed relatively flat. This was an internal hint that the market bias was biased to the upside, but entering before Fed Decisions is dangerous. Today was one of those “grit your teeth and hope you’re right” days if you chose to play.

With all the fun of the day’s action behind us, today leaves the major indices above critical resistance levels and the entire technical picture is brighter where dark clouds once loomed mightily over the horizon (in the form of converging declining moving averages). We are in a new technical picture and now odds could be favoring a potential upside bias now. This is especially true on the weekly charts.

From a “Swing” perspective only, price on the daily chart made a lower low, lower high, found support at the lower low, and then rallied to take out the recent swing high. This sets up a good picture bullishly.

On the daily charts, we found support above the rising 50 period moving average and made a higher swing low. This also is good for the bullish camp.

What looked horrible last week is now looking brighter for the market.

A major negative, however, is that this quick rally occurred on lower relative volume that the most recent (shock) decline. We’ll need to see if the moving averages can hold as potential support before sounding the “all clear” and jumping back aggressively into long positions.  If the market fails below them, then all bullish bets are off the table.

One other cautionary note: Those who own stock who refused to sell during the shock decline in early March may see a second chance to unload their position (some for breakeven now) and might sell into this recent rally. We would need to clear those pockets of supply here before going markedly higher.

I hope you enjoyed the ride down and then back up!

Addendum:

As per Vega’s comment, I wanted to post the Fibonacci grid of the most recent market move and, Vega is right – it is important to temper the bullishness with the following chart which shows that the DIA hit (to the penny) the 68.2% retracement and could indeed head lower based on this fact. What looks exciting this morning could actually be the top of a simple retracement. Do keep an eye on this if you are overly bullish on this most recent move.

Always consider both sides of the equasion before trading!

5 Comments

5 Responses to “Victory to the Bulls”

  1. Vega92 Says:

    I dunno Cory…The charts you posted look like just barely getting a .618 retracement. It wouldn’t surprise me to see more selling as we get closer to last month’s highs especially when volume has been so light. Best of luck.

  2. Corey Says:

    Great insight, Vega! I posted a Fibonacci chart at the end of the post to highlight this fact. There should be supply ahead as people who didn’t get to sell after the decline may do so now if they feel the market will be headed lower. We’ll need to clear that also before heading higher, if that indeed is the direction. Thanks!

  3. BILL KEMPERMAN Says:

    Hi all –
    I am fairly new to this blog – I find it EXTREMELY helpful and encouraging . Quality day to day stuff here !! Thank you to all contributors – Bill K.

  4. Corey Says:

    Hi Bill. Thank you for your comment and support. Hearing from you helps me feel like all the work is worth it! Feel free to contribute or email me anytime with any questions. Corey

  5. BILL KEMPERMAN Says:

    Hi all –
    I am fairly new to this blog – I find it EXTREMELY helpful and encouraging . Quality day to day stuff here !! Thank you to all contributors – Bill K.