Monday, June 10, 2013

Friday's price action produced conflicting signals. Although our 14899 downside target had been decisively exceeded a dy earlier, this was followed by a very robust, impulsive rally.  On balance, we should defer to bulls when stocks start to trade Monday morning, and traders should go with the bullish flow. However, if rallies of lesser degree start to fall shy of their 'D' targets, it would cast doubt on the integrity of the melt-up begun from the lows.

Nasty as Friday's plunge may have seemed, it left intact two closely spaced, bullish targets we've been using for the last week or so as a minimum upside objective.  To simplify, we'll remain focused on the lower one, 1426.60, since any rally that gets there is likely to hit the higher target (see archive) at 1427.00 as well.  We'll have a better idea of whether bulls are merely biding their time or, alternatively, seriously fatigued once the down-leg shown has generated a 'c-d' follow-through. If it's no worse than the pause that refreshes, expect the corrective phase to reverse from a 'p' midpoint resembling the hypothetical one sketched.

When Friday's rally had run its course, the S&Ps had just inches remaining to reach the minimum upside target at 1645.75 shown in the chart. The futures had nonetheless created a promising impulse leg with a 1650.00 target that should come easilyy as the new week begins. Catching a ride will likely be difficult, however, since the only prior peak we've got for purposes of leveraging an entry trigger is the obvious one at 1645.75. Breakout artists will be using it for the same purpose, and so I am not recommending the trade except to camouflageurs and/or night owls who have been around the block.