Good evening StockBandits!
The recovery continued last week with more of the impressive strength we’ve been seeing since the lows of October 4th. Volume, however, remained light, casting a shadow of doubt as to the validity of this tremendous move. Nonetheless, price has pushed steadily higher, exceeding prior bounce highs and in some cases (NAZ and DJIA), new closing recovery highs have been made.
As for the volume, it has persistently been light lately, highlighting a lack of participation. The higher we’ve lifted, the less it has taken in terms of volume to propel us higher, which is a dangerous situation for making new buys on any timeframe but intraday plays at this point. With that said though, price is of greater importance than volume, so we cannot dismiss the strength of late. What is important is to recognize that volume isn’t confirming the move, so particularly with the indexes quite overbought, it’s wise to exercise some caution here and shorten timeframes until some rest is seen.
My take at this point is that the real test will come on the next pullback, rather than how far the current momentum takes us. With short-covering likely a huge driving force right now coming off fresh new breakdowns, it’s somewhat evident in the lack of volume that there’s some panic buying taking place. There’s likely some accumulation taking place as well, but once the initial strength wears off and profit-taking kicks in (and it will), we should get a much better feel for the resolve of the bulls in terms of how deep they’ll allow a pullback to go before stepping in again to put cash to work.
I’ll run through some notes on the indexes here and then share more thoughts on their charts below, along with the trades I’m eyeing for Friday’s session.
NAZ – Stretched is an understatement after a 16% run in just 9 sessions for this index. We have an unfilled gap from Friday morning, as well as potential tests of the 2600 and 2555 levels on a pullback. A deeper dip would not be unhealthy. Volume has been lacking in the latter stages of this run, which makes it extremely difficult to trust until we see a dip and some support buying come in.
S&P 500 – After a run of 13.9% in 9 sessions, this index could also put in substantial rest without it being a technical negative. This index nudged past 1220 but last week stopped shy of the recovery high of 1230. Here again, volume has been below-average for all but the beginning of this run, which makes it feel very short-squeezy to me. Nonetheless, the next pullback should shed light on that and there’s a good shot at creating a short-term higher low.
RUT – A run of 18.4% in the past 9 sessions includes 2 declines, which shows just how impressive this move has been for the small-caps after breaking key support and then turning higher from 601. Next resistance is at 718, followed by the recovery high at 737, so this index still has some hurdles to clear. Best case for the bulls would be a rest first, rather than an overbought breakout which would be subject to failure.
DJIA – Reclaimed 11525 last week, and currently 11.9% off the lows. The intraday recovery high sits at 11716, although this senior index just posted its highest close since August 3rd. It has also seen weak volume, which suggests waiting for the next pullback before considering new buys for anything but intraday plays.
A little rest for this market would go a long way for improving charts of individual stocks. There are a ton which have seen impressive price runs, taking them to short-term higher highs, and that sets the stage for potential trend shifts if the next pullback results in a higher low. So at the moment almost everything looks like it badly needs rest, and cash is the place to be, but even a brief consolidation or shallow pullback would likely produce a ton of bull flags and pennants for us to choose from.
Tonight I’m going with the written format as I know some of you enjoy being able to skim the setups. My notes and trade levels are provided on the charts below.
Please leave your comments and/or questions below if you have any, I always enjoy the interaction.
Swing Trading Candidates:
NONE TONIGHT
Day Trading Candidates:
These are the trades I’m eyeing for potential plays tomorrow. I will not be holding these overnight, and will wait for these levels to be crossed before entering trades. Please see the Day Trading Strategy for more details on how I manage these trades.
The Hit List will not be posted tonight as I am 100% cash overnight and there are no new swing trades for Tuesday. The Hit List typically contains stop and target levels for my swing trades.
