Regarding the confirmation I was wondering about this afternoon...This just in from an e-mail newsletter:
Tax selling abating? No more fear of a hard landing? Cyclicals already spent?
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For whatever the reason, the Nasdaq gave us a confirmation of last
Thursday's reversal move: a 5.6% move to the upside four days after a
high-volume reversal, the move coming on strong, above average volume.
Moreover, the A/D line was better than 2 to 1. On the S&P 500, a 2.2%
move on again rising, above average volume with a better than 2 to 1 A/D
line added the third confirmation from the three major indexes. That
makes it unanimous. We have confirmations in place; will the moves up
continue on the Dow and start in earnest on the Nasdaq and S&P 500? Will
October make it three bottoms in a row? Guess we should have guessed
this; the Yankees won the 1998 and 1999 World Series, so when they cinched
the series, should have know a bottom was here.
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Confirmation basically sets the stage for major rallies. The Nasdaq and
S&P 500 confirmed moves on the fourth day; that indicates a stronger rally
if one is to come. And that is a key point. Confirmations do not
guarantee a rally, but they have historically proven to be necessary
prerequisites for any major rally off of a bottom. There are still
negatives ahead of the Nasdaq in the form of few great bullish patterns
for leadership to break out of and an overriding downtrend, though it did
break the shorter term downtrend today from the early September high.
Still, the higher volume on the move up so soon after a test of 3000 and a
reversal off of that level indicates that institutions are buying into
this move for now. We want to see that continued 'correct' price/volume
action, i.e., rising on higher volume, resting on lower volume, and then
powering back up on rising volume.
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In summary, we have to trust what the market is showing us. While there
are still negatives ahead in the form of few strong bases, a Nasdaq
downtrend, and a weakening economy, the indexes are showing us they want
to rally for now. The Dow is sawing right through overhead resistance,
and if the Dow and S&P 500 follow suit, we have a few weeks of rallying
ahead of us if this week's economic news is not too far outside of
expectations. We will see if the indexes are ready to put their heads
down and rally when the remainder of the economic news hits us this week.
In the interim, we are taking some bigger bets on our favorite patterns as
we are outlining tonight. The markets have a lot of overhead resistance,
but we are going to rely on what the market is showing us right now and
look for a treat, not a trick, from this pair of Halloween confirmations. |
