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Today’s gap higher in stocks has
many investors feeling really good about but will this rally last?
My to the point answer is
“Yes” but there will be some bumps and navigating positions along
the way.
Looking at the charts below you will
notice how stocks are trading up over 4% in two trading sessions and several
indicators and technical resistance levels are now being tested. Naturally
when several resistance levels across multiple time frames, cycles and
indicators we must be open to the idea that stocks could pause or pullback
for a few days before continuing higher.
Here is a quick snapshot of charts I
follow closely to help determine short term overbought and oversold market
conditions.
Momentum
Extremes:
This chart helps me know when stocks
are overbought or oversold. This trend can be follows using the 30 or 60
minute charts helping you spot short term tops and bottoms.
Stocks Trading Above
20 Day Moving Average:
This chart helps me time swing trades
which last for 1-3 weeks in length and I use the daily chart to spot these
reversals and trends.
Daily
SP500 Index Chart:
This chart shows the big gap in price,
test of upper bollingerband, momentum and swing
trading cycles topping and 12 buyers to ever one seller on the NYSE which
tells me everyone is running to buy everything they can today and that is a
contrarian signal.
Trading
Conclusion:
This strong bounce which started on
Monday from a very oversold market condition does
look as though it has some power behind it. And over the next 1-3 days we
could see prices grind higher until this momentum stalls out. Once that
happens we should see most of the gap filled. This will provide us with a
lower entry price and reduce our downside risk for index, sector and
commodity ETFs.
If you are a stock trader then be sure to checkout my partners
stock trading website www.ActiveTradingPartners.com where his last two trades Dec 31
pocketed 12.3% with gold stocks ETF NUGT, and took more profits with PRLB Jan
2nd for a 9.2% gain.
This type of bounce and momentum can
lead to a running correction which makes it impossible for traders to by on a
dip. A running correction is when prices slow chop higher in a narrow range
for some time then explode higher continuing its rally. This is when you just
need to jump in trades and chase prices higher but we will not do that until
I see signs of a running correction.
Today many of the major market moving
stocks are testing resistance which means if they start to get sold the broad
market will pullback with them.
Chris Vermeulen
Editor, the
Gold and Oil Guy
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