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MARKET WRAP UP 09/30/10
On the last day of the third quarter, the market threatened a major breakout within the first twenty minutes after the opening bell rang. As quickly as the S&P 500 touched 1157, it rejected that level and reversed down to 1136. At that point, the dip-buyers made another appearance to close the session down 0.31% to 1141. After a day like today, the temptation is to make a comparison to the nasty reversal we saw back on June 21st of this year, where the S&P briefly touched 1131 and then proceeded to reverse course and head down to 1010 over the next two weeks.
The simple answer is that we saw immediate confirmation to the downside following the reversal back in June, after printing that massive red engulfing candle. Beyond that, though, in the current market I believe that many individual stocks and sectors are much more technically sound than they were in the middle of the summer. Bases have had months to form and many stocks have tightened up their patterns. Moreover, many of the leading stocks have not only broken out on strong volume, but have held those breakouts after the fact.
Despite the healthier nature of the current market, compared to that which we traded this summer, there is a bunch of economic data yet to be released tonight and tomorrow. Even if you know the actual data ahead of time, there is simply no way to know how the market will react to it. So, as I wrote last evening, we are dealing with several known unkowns as well. After consolidating just below the significant 1150 level for nearly ten trading days, one group of traders will surely fall into a trap. The reversal this morning has many calling for a bull trap.
However, with the false breakouts this summer still fresh in the minds of traders, combined with no real follow-through to the downside yet, the bears would be remiss to not consider that they may be trapping themselves.
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