Stock index rally needs technical confirmation to spark uptrend

Price action and setup analysis

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

If Monday’s rally had included a dip back into Friday’s range, then a more durable upleg would be likely. But this attempt is still on probation, and it has already expended massive amounts of buying pressure. Even a durable rally would be vulnerable to reacting down off of resistance.

Pattern points… (Setups and technicals)

Gapping up and extending higher is a pretty reliable clue that a lot of selling pressure was satisfied at the decline’s 1348.00 objective last week. Gapping up 17 points is a pretty reliable clue that there will be follow-through. Gapping up at all one day following a new low is a pretty reliable clue that any follow-through will be temporary.

Not gapping up above a prior high also undermines the rally’s sponsorship. Not that the 1386.00 prior high was nearby. Not at Friday’s close. It’s nearby now, but a lot of buying pressure will have been expended already just to get there. And there’s a lot of room below even if only to correct.

At least Monday’s buying pressure did gain traction for its efforts. The close was above both the morning and noon hour highs. The late 4-point surge did not make the difference. So, Tuesday’s open must gap under Monday afternoon’s 1377.00 low to invalidate Monday’s recovery above its morning and noon hour highs, or else the trend remains up.

What’s Next… (Outlook and opportunities)

The next higher objective put into play above 1386.00 is 1393.00-1394.50. It may as well be considered in-play, so long as Tuesday’s open doesn’t reject Monday’s late surge from 1381.00. Otherwise, at least a deeper pullback would be likely, first.

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 http://IfThenSignals.com.

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