As expected the cash S&P500 rallied strongly on the Treasury “bailout” of the GSE’s. The question now will revolve around “follow through”.
Note on today’s daily chart that yesterday’s high was right at the short and medium term moving averages. That high was also right at the short term weekly moving average and was a “natural” stopping point. If yesterday’s explosive move was “too much too fast” then we should get an immediate re-test of last Thursday’s low. Such an occurrence would be a good event for the bulls because not only do I think we would hold but it would strengthen the technicals on the daily chart.
I also want to note that during the base building that has been going on since the July 15 low the RSI has tested and held the 40 area twice (marked One and Two on the chart) with yesterday being the second time. Holding 40 in this indicator is the first step in establishing a bull swing.
Before Christmas I think we will have an important top; above 1313.15 (the August high) but below the May high of 1440.
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