What a difference a day makes! Quite a comeback by the bulls. Going into today, the markets were definitely oversold but there was nothing in the action yesterday, at least in my view, that foretold such an impressive rally by the bulls. In spite of the obvious strength of today's rally, I would recommend caution here.
Firstly, a close above MA(20) on the S&P would have been nice but the index closed just below that. More importantly, have a look at the chart below. Today's rally met resistance exactly at 50% Fibonnaci level (taking the top as the highs made by the market last week and the bottom as the lows of Tuesday).
Let's zoom in a bit. Below is a 15 minute chart of the S&P. Today's rally met stiff resistance at 1200, so that will be the first level to watch out for tomorrow. But the more important level in my view is 1207. For the bulls to get their mojo back and the action of the last few days to seem like nothing but an ordinary pullback, it is important that the bulls regain control of 1207.
Just to make things clear, I am in no way advocating short positions here. I am myself long here. All I am saying is don't get carried away by the action of one day and keep in mind the market action from earlier this week. Its interesting to note that both the big moves of the week, up and down, came as gap down and gap up, which just makes exercising that little bit of caution even more necessary.
Take care and good luck!
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