Is this the beginning of a sustained rally?

July 18, 2006 · Print This Article

The Nasdaq 100 (QQQQ) established a new low today while the S&P (SPY), Dow (DIA) and Russell 2000 (IWM) were able to tread above recently established lows. This scenario could potentially be very important for the short-term health of the market. The fact that the other major indices, especially the S&P, were able to hold recent levels without establishing new lows and that the QQQQ snapped back immediately and led the market higher after the new lows were set proves that there is still a decent number of bulls out there ready to put their money to work. The lows in the S&P today should act as a decent support going forward.

Many on Wall Street are predicting tomorrow to be a pivotal day for the intermediate-term. Big Ben begins a two-day mid-year session with Congress and the market will be listening intently to his every word. No one knows for sure if he will give a hawkish or dovish scenario for the economy, but if the market does move lower and we can hold the support levels established today there should be some buyers ready to pull the trigger. We are coming off of one of the worst weeks for the market in quite some time as the Dow and the S&P just broke a losing streak that happened to be the worst in several years, so this market (if it is going to move higher) should be prepared for the worst. If Mr. Bernanke indicates a pause in interest rates for August we could see this market fly. As I stated yesterday the probability favors the bulls over the short-term and a few more moves like today and we could be in for a sustained rally. There are still many uncertainties to overcome (geopolitical, strength and guidance of earnings, etc) over the short-term, but if we can get through the next few days with a slightly bullish bias the market should be poised to move higher over the coming weeks. As I write this the futures are down on Yahoo’s report so if there happens to be a gap down tomorrow with a quick recovery this could prove to be the healthy scenario the bulls need. We must remember that options expiration is Friday so expect to see some decent volatility over the coming days. Have a wonderful night and trade smart.

RSI Wilder (5) for July 18, 2006