I mentioned on Wednesday’s video market recap here that the tight consolidation the market had been working through had become quite obvious. When that happens, you tend to see a quick move in one direction that suddenly stops and aggressively reverses for the true move. Remember, the market tends to do that which catches most flat-footed or out of position. With rising major moving averages on the index daily charts, coupled with, by and large, constructive price action in a plethora of individual issues, the bulls continue to hold the intermediate-term initiative.
For those reasons, in addition to the healthy amount of skepticism regarding the current rally, yesterday’s move lower in the market smacked of a shakeout. With today’s strength after an initial fade just after Bernanke’s Jackson Hole speech, the bulls once again have set a trap to lure in eager bears. Whether they execute the trap full remains to be seen. To be sure, bears are arguing that today’s rally is nothing more than month-end window dressing. Indeed, with a long holiday weekend soon upon us, the jury may very well be out until next week regarding the sustainability of this move. However, the persistent theme is that the bears have been unable to break this market each time they think a breakdown is within reach.
A good proxy for the bears’ frustration also is in the homebuilders sector. Note how many tops have been called there, yet the price action and volume patterns remain constructive, squeezing shorts along the way. Also continue to keep an eye on tech leaders such as EBAY.