This morning’s rally is proving to be legitimate enough to gain steam as it goes along. Stocks across the board are begging to breathe a sigh of relief that we are not crashing another 500 Dow points. It is a disturbing to see a few of the major European Union countries institute a short-selling ban, when we know from the fall of 2008 that all that really does is decrease liquidity and increase volatility. After all, when a short wants to take profits, he has to cover the stock, which creates another buyer.
At any rate, the market has stopped going down and making new lows for now. 1101 on the S&P 500 from Tuesday is the major line in the sand, and we are flirting with overtaking the multi-year important level of 1150. One issue going forward is that we may start seeing a multitude of bear flags develop on daily charts, given that we have flopped around violently this week. Hence, today’s performance is a big tree in a little forest, as looking at a daily chart of any of the senior indices will tell you.
Alternatively, we could simply be basing here before turning higher. The probabilities for a low-risk entry here are not particularly favorable, and there is nothing wrong with continuing to sit out until the picture clears up further.
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