11/29/12
Stocks reversed dramatically higher yesterday as the Dow, down 110-points at one point, ended the day up 107. Optimism surrounding the budget talks triggered the rally.
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I'm usually pretty skeptical when the market moves sharply on an emotional announcement. What I do trust - in general - are charts and yesterday's reversal does look positive and reversal days tend to follow-through the following day. The problem is S&P 500 is up against the flat top that we have been watching, and while it is technically above the 50-day EMA by about one point, it is still in the neighborhood and I wouldn't consider this a breakout above the 50-day EMA yet.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
That could very well happen today if we get the upside follow-through, and I might even be inclined to buy if that happens (although I'm out of IFT's in November), but lets see that flat top get broken before getting too bullish.
The Nasdaq 100, the largest U.S. tech stocks, put in a positive outside day on Wednesday (made a higher high, and a lower low compared to Tuesday's action). But as you can see it ran right into the 50-day EMA. If the bull market is going to resume, the 50-day EMA should get taken out. If the market is changing its character and turning into something more long-term bearish, the 50-day EMA will be tough to break.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The dollar seems to want to give stocks a boost. There is a clear bear flag being formed on the UUP, which tend to break down, and we know that a weakening dollar has a strong tendency to help the price of stocks.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The UUP chart, however, still has a large open gap near 22.15 and if there is an attempt to close that, those indices above would likely fail to regain the 50-day EMA in the short-term.
That's about all I have today. We saw a nice reversal day but the flat top and 50-day EMA are still in play so I want to see which way investors want to take this before committing to a direction.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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