And so I extend that view to U.S. stocks and think that maybe this morning’s rally is just such a violent countertrend move that will not sustain itself. But there is evidence for both bullish and bearish views here and it’s worth discussing all possibilities.
At the beginning of the week, stocks moved down and hit the bottom channels on the 60 and 135 minute time frames. Those channels proved to mark lows and stocks then went sideways, and it looked like they were waiting for the channels to fall off and provide lower targets. Yesterday stocks drifted up on very poor internals to approach the top of the 60 minute channel near 1284. This morning stocks pierced through that channel with more conviction than the bears were able to muster on the downside at week’s beginning. A fact that has to be considered a sign of strength.
Today, prices have since fallen back into the channel and are just above the levels where pit trading opened (1284). The rest of today seems critical in assessing this tug-of-war going forward. A close today below 1284 makes this a gap up and fail day, appearing as some type of countertrend climax in advance of lower prices next week. However if this morning’s gains are consolidated, then the bearish signals of the daily chart have to be put on hold and some type of run back up to 1300 to 1310 be considered.
click chart to enlarge
click chart to enlarge
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