Procede with caution:
Swing Trader: Turnaround Tuesday Potential After Climactic Buying?
New money flow comes pouring into the market on Monday, launching the major indices aggressively higher during the first hour. A midday chop sideways eventually set up another round of buying in the afternoon with a strong squeeze higher into the close. Dow +214, SPX +29, Nasdaq +44, Russell +20. The action was led by strength among Financials XLF +10% (Banks BKX +14%, Reits +8%), Basic Materials XLB +5.6%, Semis SOX +5.5%, Energy XLE +4%, Industrials XLI +3.25%, Discretionary XLY +3.25%, Chemicals +4.4%, and Gold XAU +6.2%. Gold staged a rally after a 5-day pullback, closing back above the $900-level. Crude extended its climb back up to the top of its 5-week range near $54/55 a barrel. The US Dollar continues to sink from its Rising Wedge pattern.
Looking at the SPX chart below, we have a Wide Range bar thrusting higher above its Upper Daily Bollinger Band (895) to challenge its Upper Rising Channel line. All the major indices managed to rally in the afternoon, with a push higher into the close, finishing at fresh multi-month highs. The SPX managed to close above its 2008 close of 903, a key target that puts the SPX in "positive" territory year to date. The next levels of interest would be the January closing high and the high itself of 934/943.
Sentiment and technical indicators are showing signs of near-term "overbought" conditions, suggesting little to no edge to be initiating new Swing positions. RSI-5 appears to have broken its Negative Divergence which was in effect the last few weeks (a bullish sign), but has become near-term "overbought" in doing so. TRIN was very strong with a reading around the low 0.30's all session long. This aggressive buying pressure could be an indication of "climactic" or "exhaustive" buying given the +35% gain off the March low. The A/D lines are also near-term overbought suggesting a pending correction is looming.
From a timing perspective, it's significant to note that Tuesday marks Day 41 of this rally off the March low, which has "symmetry" with the first quarter decline as the time from the early January high to the March low was also 41 days. The 903 level was also a significant Gann target if challenged here around May 1.
Bottom line is the uptrend remains intact so you can't ignore the underlying bids on weakness that have consistently been present through the last few weeks. One of the first signs to watch for these bids to have disappear would be a breakdown on a 60 min chart uptrend line (shown below). The uptrend has held very well as of late, but a breach below it, could suggest the bid is no longer there. Another interesting note, is that on Monday's late-day rally, the Sellers basically "gave up" allowing for a strong "push" higher into the close. That "Seller Submission" adds further to the "Climactic Buying" theory mentioned above, almost a "Buyer's Complacency" if you would. However, price action remains our #1 guide, so until then be sure to treat Shorts as "counter-trend" trades demanding the utmost respect of risk control.
Horsehead and Orion Nebulae
AI
