Opening stock market surge creates cushion for bulls

October 1, 2012 04:34 PM
Setups and technicals

If a new downleg ignores two overbought RSIs… then sellers must have strong sponsorship. It wouldn’t be the first time that multiple pieces of unfinished business were left outstanding above. But it would be unusual. And it would develop very quickly, if at all.

Pattern points… (Setups and technicals)

Now, along with the two-week old overbought RSI at 1468.00, Monday morning’s surge to 1451.50 also requires a retest. It was far enough removed from a news item not to be considered a knee-jerk reaction. The requirement to retest it did not prevent the balance of the afternoon from falling substantially.

The opening surge did create extra room to absorb selling pressure, and that may have saved the market’s 17-point retracement from turning negative. Regardless, the retracement does make Sunday night’s 1427.75 lows likely to be retested eventually, if not also last week’s 1424.00 low.

A lot of buying pressure was expended Sunday night and Monday morning. That was a lot of selling pressure expended since then. And all without closing in negative territory. That was only barely avoided, and not at all rejected, so Tuesday can still resume the decline, but another upleg remains possible.

What’s Next… (Outlook and opportunities)

If the prior lows’ retest were to begin Tuesday, then it should include opening under the 1432.00 area. By the same token, not opening under the 1432.00 area would be unlikely to extend down. And likelier to bounce. Quickly recovering 1441.00 would all but ensure that 1436.00’s support had held.

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 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