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Will “Rally Attempt” hold?

Today the market (SPY) provided a follow up in its price action to yesterday’s break above the trend line. It can be a shakeout, but I still see it more likely as a bottoming pattern. Today’s price extended recent rally all the way up to 50 day MA, but it broke thru the two month long downtrend line on higher than average volume.

That doesn’t mean that we should be buying into this rally. We still should be sitting tight, saving cash for more buying and wait for more confirmation. I am still expecting a downward move from these levels. However, since the price extension is quite significant, I am convinced that the market will not go too low to create a new lower low, but it will create a new higher low.


Click the image to enlarge.

If that happens we may go down to 137 major support level. This level played a significant resistance and support role during May 2011 and March – May 2012 respectively. I think we may stop at that level if that is the case and move back up. That would be our first higher low.

That’s why I think we are experiencing a “Rally Attempt”. We still can fail and see even more extended down pressure if the negotiations in Congress about the fiscal cliff fail and who knows what else the politicians bake for us and what mess they create. Somewhere on the internet I read a note that they have no clue what impact their comments can have on public. I agree with it and all that can still change the course of the market.

So what’s next? Wait for confirmation, save more cash and let’s see if the market creates its first higher low and reverses. The Rally Attempt can still fail.

Happy Trading!

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