Can Stocks Continue to Pop?

Wow! Stocks have put together two days of rip-roaring gains. The major averages have added roughly 12% in barely two sessions. So where do we stand technically?

With charts a mess and moving averages pointing steeply down, it's worth looking at resistance and support levels.

The major averages have moved up aggressively but have not yet cleared the first resistance levels. Indeed, yesterday they began penetrating above resistance but fell back. These are the levels we are watching:

• S&P 500: 850
• NASDAQ 100: 1500
• Dow Industrials: today the Dow breached first resistance at about 8250 but was not able to get past 8500
• Russell 2000: 450

A clear push above these levels would imply the current rally has legs. Failure to break above them would bring out the caution flag again. As an example, the chart of the S&P 500 is presented below (click to enlarge). The resistance level described above stands out plainly.


In closing, I would like to point out that none of the major averages have reached their 20-day moving averages yet. As an indication of how weak stocks have been, the last time the major averages came up against their 20-day MA, they tentatively moved above the 20-day and then promptly tumbled to new lows.

Finally, looking at RSI, it appears stocks are no longer so terribly oversold. These developments are also illustrated in the chart above.

Nevertheless, sentiment is now positive, volume has been heavy on these up days and investors are hoping they see light at the end of the tunnel. Keep an eye on these levels, it might finally be time to nibble on some stocks.

Comments

[Kingsley An...:]

I m not about to nibble on anything yet, but if the markets cannot bust through the aforementioned resistance levels, it looks like we will see more downside. I'm also curious to see the markets finally get back to the fifty dma - that will be a true test.

2008 Nov 25 06:02 AM

[xsuddensam:]

What are you smoking? These wild swings are proven characteristics of a bear market.

This is a classic SUCKER'S RALLY!

2008 Nov 25 09:21 AM

[Pauly B:]

When I see the first indication of jobs numbers, consumer confidence, credit markets, home sales, and the auto mess cleaned up, then I will believe any breakthrough of resistance on a chart.

Right now its who's balance sheets will hold up in the coming quarters.

With the VIX at historic levels everything changes on a wim.

2008 Nov 25 10:18 AM

[anarchist:]

We must be looking at different sources for volume, it appeared to me that yesterday's rally was not a high volume day, moderate at best. No follow-through today (yet) so I would be cautious about jumping in.

2008 Nov 25 01:17 PM