Double Reversal on the Rocks

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MARKET WRAP UP 10/21/10

After a morning gap up to multi-month highs today, the S&P 500 sharply reversed to turn in the red before the bulls staged a final hour comeback, as we finished up 0.18% to 1180. Underneath the surface, many individual issues saw intense reversals as well. However, there was not nearly as much technical damage done as one would think. Across the leading indices and sectors, the short-term momentum higher is becoming increasingly turbulent. Nonetheless, we are simply going to need more evidence of the bears recapturing the initiative before a change in trend can be declared.

As an example, let us look at one of my positions, $SHLD. The stock was performing brilliantly this morning, breaking out of a tight price pattern. Along with the broad market, Sears reversed sharply as the day progressed, yet finished in the green. While today’s candle looks nasty on the daily chart, seen below, the stock really has done nothing “wrong” to force me to sell or turn bearish. Rather, it simply failed to hold its nice gains intraday.

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Sears is far from a broken chart. Should the bears build on today’s reversal and push Sears, along with the broad market, down tomorrow, then that would be a reason to grow even more cautious. Until that happens, though, the prevailing trend remains higher, albeit with a choppy short-term picture.

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