How to tell if this market rally is for real.
Does this rally have legs? Should you buy into this rally or is it just another fakeout? If this rally is mere short covering and has no legs than buying into it could be risky.
Here is what we need to see to convince us this rally is for real...
For starters, we expect to see a huge pop at the open, so the important thing to look at is how we finish the day.
We need to see heavy volume and the major indices need to close in the top ½ of their ranges. Closing in the top 25% of the day’s range would be ideal.
If we get this heavy volume on Monday and we close in the lower half or worse near the lows of the day, this would be seen as very bearish and could indicate lower prices. Even if we are still up 1-2% for the day this, would be very negative and could mean lower prices are coming.
Here are the important price levels we need to watch:
The Dow Jones need to trade and hold above the 10730 level and preferably the 10840 level.
The next resistance levels above those are 10927 and then 11012 which we doubt will be penetrated on Monday. We would like to see those levels reclaimed by the end of the week.
We would like to see the S&P 500 trade above and hold the 1151 level. It would be ideal if it could break above and hold the 1171-1176 level. 1190 is another important level but should prove to be a big resistance.
We would like to see the NASDAQ trade above and hold the 2326 level. Ideally we would like to see the NASDAQ trade above the 2410 level. 2434 and 2465 could prove to be big short term resistance.
Disclosure: no positions