Technical Analysis: How Long Can the Rally Last?

First and foremost, no one can deny that the trend right now is up. The guys over at MarketClub have placed an emphasis on the saying, "don't fight the tape." At the same time though, they wonder how long the market rally can really last. They highlight the 50% fibonacci retracement as potential resistance ahead at Dow 10,339 in their latest market technical analysis video.

They don't debate that the trend is up. However, they feel that the market has the potential to begin to roll-over and so they're watching cautiously. The market has been stair-stepping higher and each sell-off is met with more buying. What's important to watch is those levels where the market reversed and headed higher yet again. If the market takes out those mini-dip levels to the downside, they say that could be your signal it is starting to roll over. But still, "don't fight the tape." Wait for the weakness at the levels they outline in the video.

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Also, if you're interested in technical analysis on specific equities, they recently put out a video on Research in Motion (RIMM). They think this name could potentially trade all the way down to the $40s, even after its announcement of a share buyback. The current technical pattern is bearish for RIMM in the coming weeks according to the video.

Lastly, they turn to commodities. In a crude oil video, they are taking a look at classic charting patterns that are taking shape. They note to pay attention to the MACD, saying that if it crosses the average it will be bullish. Aditionally, the commodity itself has gone into a flag pattern which has the potential to send oil much higher. So, they say to keep an eye on the chart. See their crude oil analysis here.

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Comments

[Mad Hedge F...:]

por If I’ve told you once, I’ve told you a thousand times, stay out of those crummy neighborhoods, where the street corners are crowded with high priced stocks of dubious moral character wearing stiletto heels, fishnet stockings, miniskirts, and shoulder handbags. Sure, I know you young traders have needs, think with your hormones, and believe you can live forever. But if you absolutely have to go slumming, at least use some cheap protection. I noticed today that the January 1030 S&P 500 puts were selling at a bargain $19 today. That means for a mere $950 you can buy some decent downside protection for a $55,000 portfolio that takes you all the way out to January 15, 2010. That is bang on the support level that held in the last sell off. If you double top here on the charts and go down for a retest, you double you money. If yearend profit taking causes us to sell off going into the holidays, and we break that support, you make more. If the market melts down the day after we flip the calendar page to 2010, a distinct possibility, then you hit a home run. If the lemmings keep driving this market up every day for two more months, then you lose $900, or 1.72% of your portfolio, pennies, really, against the huge returns you have booked so far this year. It’s a win, win, win, lose pennies trader. I know that the pros that have done for a long time put these trades on without even thinking about it. It’s all about risk control. Since I am a cheapskate, I only like strapping on trades that have a risk/reward ratio overwhelmingly in my favor, and with the volatility index today a bargain 23%, this fits the bill nicely. Buy your storm insurance when the sun is shining.

Nov 12 08:05 AM

[SeekingTruth:]

We broke down thru the head and shoulders neckline in July , and this was supposed to be the "weakness" that would signal a further correction. What happened ? --- The market then went UP!
Technical analysis has many strong suits, and so I use it too, but too often the hand is over played. The trick is to use TA as another arrow in the quiver, and not as a single strategy.
In today's world there are so many shenanigans going on (like the sudden removal of mark to market, etc.) that TA is often turned on its head and can sometimes be used as a contrarian indicator.
Like the folks say, you can "watch the tape" until you are blue in the face, but it is never a substitute for taking on some 'informed" (try to guess right) risk taking based on "all" the info, judgment, etc. that one can muster. .

Nov 12 11:55 AM

[heh:]

technical anaylisys means nothing. its simply a stat to show what happens not a crystal ball..its an aid to make a guess.. did technical analysis predict the huge drops during start recesion no? so saying something will dip into the 40's is pure bs why pick on rim why not say 200 appl full of hot air will be down in the 150's soon

Nov 12 01:03 PM

[untrusting ...:]

The real answer has nothing to do with TA, fundamentals, or economic indicators. The real answer is the recovery rally can last as long as the Fed is willing to keep putting massive liquidity into the system, and as long as the Fed is willing to keep using QE, and as long as the Fed is willing to keep interest at virtually zero, and as long as the Fed is willing to provide tacit approval and liquidity to the prop trading desks to support the market and prevent sell-offs, and as long as the Fed is willing to ignore the large dollar devaluation.

Who knows when the Fed will get "tapped out" and be forced to change direction. But the Fed doesn't control everything and many factors could force the Fed's hand and thus cause a pretty significant sell-off in the markets. Some examples might include:
1) Other countries get really annoyed at a continued devaluation in the dollar and the competitive disadvantges of it, and force the Fed to begin providing coordinated dollar support.
2) The bond market refuses to continue buying more US debt unless rates are increased.
3) The prop. trading desks cannot force the equities market much higher without hugh efforts, and thus decide it will be far more profitable to build large short positions and take the market down. After all, they really only care about maximizing trading profits and at some point they will make a lot more on big sell-offs that attempting to force more increases.

And probably many other factors, but who knows when the big correction will start. But it is a near certainty that it will happen sometime over the next 1-12 months.

Nov 12 03:26 PM

[User 110363:]

I like your idea, but I can't follow your math. What is the symbol for the S&P 500 that you are buying puts on? Also, isn't a price of 19 equal to $1,900. How do you get 5 options for 950?
Please advise.


On Nov 12 08:05 AM Mad Hedge Fund Trader wrote:

> por If I’ve told you once, I’ve told you a thousand times, stay out
> of those crummy neighborhoods, where the street corners are crowded
> with high priced stocks of dubious moral character wearing stiletto
> heels, fishnet stockings, miniskirts, and shoulder handbags. Sure,
> I know you young traders have needs, think with your hormones, and
> believe you can live forever. But if you absolutely have to go slumming,
> at least use some cheap protection. I noticed today that the January
> 1030 S&P 500 puts were selling at a bargain $19 today. That means
> for a mere $950 you can buy some decent downside protection for a
> $55,000 portfolio that takes you all the way out to January 15, 2010.
> That is bang on the support level that held in the last sell off.
> If you double top here on the charts and go down for a retest, you
> double you money. If yearend profit taking causes us to sell off
> going into the holidays, and we break that support, you make more.
> If the market melts down the day after we flip the calendar page
> to 2010, a distinct possibility, then you hit a home run. If the
> lemmings keep driving this market up every day for two more months,
> then you lose $900, or 1.72% of your portfolio, pennies, really,
> against the huge returns you have booked so far this year. It’s a
> win, win, win, lose pennies trader. I know that the pros that have
> done for a long time put these trades on without even thinking about
> it. It’s all about risk control. Since I am a cheapskate, I only
> like strapping on trades that have a risk/reward ratio overwhelmingly
> in my favor, and with the volatility index today a bargain 23%, this
> fits the bill nicely. Buy your storm insurance when the sun is shining.

Nov 12 08:34 PM

[SeekingTruth:]

untrusting:
Good commentary.
I'm not trying to piggy back on your well summarized and excellent thoughts , but these are some of the same factors that I was alluding to , but did not list, in my prior comment.
The "Big Casino in the Sky" continues to spin, aided by the big invisible hands of the US Give - a - mint (to some) and the Golden Sharks.
User 110363: I noticed the same puzzling math, thanks for calling it to the writer's attention, and generally I agree, his suggestion , if properly implemented, makes good sense for more than a few people.

Nov 13 06:17 AM