The Dow Industrials reversed 700 points yesterday, turning a morning disaster into an afternoon wilding spree with the potential to end the week on a bullish note. The rally was purely technical, beginning as it did a millimeter beneath an important low recorded on November 23 that had served as a ‘structural’ support. As is the case so much of the time, the downtrend had to penetrate the support, stopping out bulls, in order to ensure that the subsequent rally was light, frisky and unburdened by profit-takers.
Death Dive Ahead
The usual suspects will the say the stock market’s ‘amazing’ recovery was due to some specific news development, but in reality it was caused 100% by short-covering. That does not necessarily mean we should presume heavily against bulls over the next day or two. The rebound may be a hoax destined to fail, but this could occur at significantly higher levels, especially if other traders remain as skeptical about it as we are. Whatever the case, we should assume that every uptick is being used by DaBoyz to distribute as much stock as possible. They are masters at this, and if they succeed in a big way, many of us will be thinking the Dow actually has a shot at testing its old highs around the time it is actually an inch from resuming its death dive.
Contract highs or lows are inflection points towards the larger trend.
As, contract highs and lows are created by long term trading ranges thus creating a lot of effort but little results during the life of a back contract to the front month.
Take note that today ZB H19 was 10 tics from its contract high point. Take note of SP new H19 coming in, as it is resting and testing its contract low point for 20+/- trading days.
As we have seen in the recent NG markets many have been ‘writing’ options during a large trading range collecting premium, contract lows and highs are places where sellers of options become a much larger ‘risk’ towards investment capital and are at the ‘mercy of the market’ to a larger degree.
Have a great day Rick tomorrow.