Wednesday, May 23, 2012

Today COULD Be the Start of Something, But Bulls Still Have Much Work to Do

If you read my weekend post, I said that most bounces that occur from extreme oversold conditions usually see a big push higher, followed by some heavy selling to test the bulls, and then some choppy trade sideways, with an occasional new rally instead of the sideways chop.   I expected to see something like that start this week - a bounce that would last two or three days, some heavy selling for two or three days, and then a period to reassess things.  I did not expect this process to be condensed into the course of three days.   That's basically what we've seen this week.  We got the big bounce on Monday, followed by a nasty reversal on Tuesday that certainly tested the mettle of the bulls.   We saw a nasty open today and some heavy selling early, but then another reversal started at lunch and with a very strong close, bulls look to be somewhat stronger than I expected them to be here (at least as of now). 

Although I am holding three long positions into tomorrow's session, I can't say I am "bullish" quite yet.  I am obviously getting there but I think the bulls still have some work to do.  If you read this blog often, you know that I focus heavily on the nine day EMA as a short-term trend indicator and the market is still underneath this key level across the board.  If this level is overtaken, I will get "bullish", at least in the short-term. 


If it can clear that nine day EMA, the Nasdaq still has to deal with some key overhead resistance around 2885.  If it can clear that on heavier volume, I think the bulls have a chance.   Ideally, we get above those levels on a big session, then rest for a few days.   We'll see if that happens.  On the other hand, if today's lows happen to be broken, all bets are off.


Here are a few setups that I am watching here.   No need to rush - if this does turn into something meaningful, there will be plenty of opportunities to make money.  My focus remains very short-term and I am looking to take profits as I get them, even if it means 3-5% gains instead of 10-15% ones.

All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Good luck Thursday.   Hopefully we get a big push here into the end of the month, but honestly, nothing will surprise.   Keep your mind open - things are looking better after today's reversal but if the bulls don't run with it, then we will likely be back to chop.  

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