Technical talk: Is rally done?

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The comments below were provided by Kevin Lane of Fusion IQ.

The S&P 500 is rallying back into its upper resistance zone and minor downtrend line … The market has now moved 26.37% off the intraday low set on March 6, 2009. The easy call here is to say, “Sell everything and lock in the gains from this trading rally and wait for a re-test then buy back in!”

However, as we all know the easy calls are the ones that are so obvious they never seem to work out. As the old traders’ saying goes, “The market is here to reward the minority and confound the majority.” After meeting a lot of investors recently in meetings many feel and I quote, “safe” in cash and also “do not mind having missed this move”.

So anecdotal sentiment observations are this rally is not real. When I hear that from a lot of people it makes me think resistance or not we may have a shot to work higher still. That said we explore a few charts to gain more perspective.

The S&P 500 is at its minor downtrend line as well as its upper resistance level near 850. Support and resistance, while not an exact science, do provide us backdrops as to where markets are likely to stall or bounce. However, when looking at support and resistance one must gauge what buying (and selling) power look like to give them an idea of whether those support or resistance areas are likely to hold.

Right now liquidity is strong as evidenced several times of late by the market dipping and roaring back. So while the market could stall here near 850, if liquidity is strong it could pop up to 881, the first Fibonacci retracement level from the 2007 highs to 2009 lows. (I don’t put a ton of faith in Fibonnaci retracements levels, but a lot of traders watch them.)

Source: Kevin Lane, Fusion IQ, April 6, 2009.

 

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