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Market Recap: Rally Fails

November 11, 2008 8:44 PM

Today was a typical gap day down until late afternoon. We had zero decent lows, a trend break, and I mentioned that if 896 cleared some shorts would cover. Cover they did as it shot up all the way to 905. I then said “if 905 clears, we should see 917″. 905 cleared and it made a high of 917.15 before reversing.

The attempt at a late rally did not surprise me, at all as it was a close day. What I did not like, on any level, was the lack of a low. The move was entirely based on a trend break and short covering that got out of hand. I still believe we have to clear 884 and reverse if we are too make a low to attempt to take out 1044. We STILL have no decent lows above the low on the SP - zero. This thing is a complete house of cards.

If you notice all of the volatility came in the last 2 hours. Before that it barely moved. It was a “close day”, and everyone was waiting to see if it would reverse. The key to understanding today was once 905 cleared, we would likely see 917 or higher. Point being, just because a gap is filled does not mean it will rally from there. It means it could. There were two problems - it strongly rejected 917 and we had no firm low - the move was not supported by anything.

I view all moves above 884 as nonsense and non supported. However, it is possible the market will continue to trade on trend lines here. I do not like trend lines, on any level. They are the same as moving averages - temporary. We will see.

The market appears to be at a critical stage in the next few days. We are either going to break to the upside or it is going to challenge the lows. Considering we have no rejection of any low, of any kind, my personal guess is a breakdown. But I am not sure and my guess is the traders are not sure also.

We are near the low put in on the financials, so there should be an attempt to hold this area. This is possibly why the downside was limited today. Traders are most likely watching the low put in on financials and we are very close. In addition, Goldman made a reversal attempt today. If we are going to move higher here, the GS low has to hold I believe, so keep an eye on it. That should be the “tell” on where we are going near term. If this GS low is taken out, then we will likely take out the lows put in on financials and the market is likely in trouble.

Therefore, if you think we are going up here, then the trade should be long GS right here above 66.68. Personally I am very skeptical of the market and even more skeptical of the SP low put in and I do not believe the SP low will hold long term. What I would like to see to be long this train wreck is another gap down tomorrow and then have the gap bought and make this simple for a change.

Written by Tom@StockBlade.com · Filed Under SP Futures 

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