Stock rally testing highs or refueling for new trend?

Technical setups and patterns

Stock index, chart, technical analysis Stock index, chart, technical analysis

If the blip and dip rally pattern ended already… then does Friday’s blip and dip rally signal that the rally is really just a retest of prior highs? Or is there a bigger refueling process underway?

Pattern points… (Setups and technicals)

We spent a lot of time during the past 3-4 sessions discussing a pattern that was emerging, repeating, and then seemingly ended. That pattern was the post-open retracement of overnight/opening gains. Its purpose was to expend selling pressure from levels where its downlegs would not damage the chart.

If the pattern ended Thursday or earlier, then how to justify Friday’s 15-point reaction down to 1451.25 from Friday’s overnight/opening rally up to 1466.00? The session ultimately ended unchanged from Thursday’s 1456.00 close. So, was another early gain for trapping more shorts, so that squeezing them Monday could refuel the rally higher?

The easy answer is, we’ll see Monday. But if the rally is not extending higher immediately, then it probably isn’t extending higher, at all. And if it extends higher immediately, then it had better not look back when 1468.00 is retested — otherwise Friday’s sellers were not weak hands.

What’s Next… (Outlook and opportunities)

Join us this weekend for the Saturday Strategy Session at 9:30am ET. We’ll discuss the bigger picture, specific setups from the week past, and expectations for the week ahead. We’ll also do an instant analysis of any stock requests.

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

About the Author
Rod David

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog

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