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July 13, 2010

Rally Pause Nigh

The more the stock market rallies, the more potent our expectation of leaving behind a V-bottom. Equities have now popped more than 8% in a mere 7 sessions, yet sentiment refuses to budge off bearish extremes. I have a suspicion that the transition from bearishness to bullishness as this rally progresses will be closer to a spontaneous event than a gradual process, and will likely occur during the second leg higher. In the meantime, we await a pull-back or consolidation to separate this first leg higher from the second.

S&P 500 technical analysis

Given the excitement generated by Intel's earnings report... index futures are up nicely overnight... I would not be surprised to see that 65DMA test arrive in the next couple of days. Certainly, if we saw the SPX surge higher early Wednesday to tag the MA, the gunslingers in the crowd would be presented with a controlled-risk, short-side entry. However, the safer play would be to wait for a pull-back and buy oversold conditions because oversold states should possess rather short shelf lives during rally stages.

Gold and silver continue to progress well. Now, I realize the "progress well" proclamation is quite subjective, and many traders may take issue such a judgment given the choppy action in gold since May. However, considering that gold is barely 3% off its all-time high, one has to believe that the frustration and cynicism toward gold expressed on so many blogs can only be the product of undue leverage and/or impatience. When the rally toward $1400 unfurls its sails... whether it be over the summer or during the historically favorable autumn season... I can't wait to see how many of these same babblers are left behind with only excuses for why they are not enjoying the ride. I just hope that none currently present find themselves in that crowd.

 

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