Will this rally have legs?

Today’s rally was identical to the last three over the past month, at least so far. Each rally ended the day with a bullish precedent, 10-1 up versus down volume. Historically, these types of moves have sparked buying interest and have led to some decent gains going forward. Unfortunately, as we all know the last three have sold-off immediately following each rally. However, one historical precedent was broken today, the post-expiration blues.

As I mention on each options expiration, the day following expiration is historically bearish, especially after our recent options expiration. Well, today that strong seasonal bias was broken as the market rallied without hesitation. This could be the bullish sign the market needs as a jumpstart to move forward over the intermediate-term. However, it looks like we might have some difficult headway for the short-term as some decent resistance sits overhead and we are nearing an overbought state in the major indices, but if we can consolidate here or extend today’s rally we could be in store for our first sustainable rally in quite some time. When markets are able to rally in the face of an overbought state this is usually a good sign going forward. We shall see soon enough. Furthermore, there seems to be a good possibilty that we hit the bottom of the trading range that we have been carving out for months. Another cliche – only time will tell – but if time favors the bulls, given the recent action and the techincal indicators I have mentioned over the past few weeks, we could be in store for a decent rally over the next several weeks. Take care and have a wonderful night!

Daily Articles of Interst

• : How a Trade is Made – Nice educational tutorial from our friends at the CBOE

RSI Wilder (5) for July 24, 2006

• SPY – 61.9 (neutral)
• DIA – 61.7 (neutral)
• QQQQ – 49.6 (neutral)
• IWM – 54.3 (neutral)