Exposing Ideas to the Envelope of Serendipity

Contact moo at: bluechipbulldog@gmail.com

Monday, June 14, 2010

Where to Next?

After succumbing to a thorough thrashing by the bears since an intermediate-term top was put into place in April, the bulls are back on the playing field, although their conviction as reflected in recent volume is a little shaky. Nevertheless, it is price that matters most in the final analysis, and on that score the bulls are making a fairly good stand in recent sessions.

While we've been watching the descending wedge pattern on the $SPX, the /ES, and some other indexes, there is now also a potential double bottom in the works. A decisive close above 1,108 on the /ES would authenticate the pattern (June contract, adjust for September), but I'll also be watching for confirmation on the $SPX. Because resistance approaching that line in the sand is considerable, some consolidation or a pull-back is likely before possible continuation above the line. If the pattern does confirm, a measured move would carry it precisely to the original melt-down point. Fascinating.

The Russell 2000 managed a close just above the descending trendline that defines the upper boundary of its bullish descending wedge pattern. This has also occurred on the $SPX. A return to the trendline for a test would be standard, while a convincing close back below the line would call the rally into question.

After the recent carnage in stocks, there remains much recovery work to do and the fledgling rally effort is still fragile. Furthermore, we're very close to levels where odds of a near-term pullback are high. The patterns now in play suggest that we have a low in place and continued upside progress is most likely -- but it is important to recognize that that doesn't preclude some sharp downdrafts along the way. Confirmation of the double bottom, if it occurs, would clear the way considerably for the bulls in the near to intermediate-term.

Trade well.

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