Stock rebound timing could determine followthrough

January 31, 2013 04:51 PM
Price action and trade setups

If sellers are ready to take control… then is there no reason to try rallying again? Only after the morning. A morning rally would still leave time to be absorbed, rejected, and reversed back down more substantially. But an afternoon rally back to or through this week’s highs would be much likelier simply to extend higher.

Pattern points… (Setups and technicals)

The reaction down from 1503.00 has been developing slowly. This suggests that if sellers are actually taking hold, then their follow-through will be substantial. Still waters run deep, snowball effect, etc.

Friday being the Employment Situation report, it is possible that Thursday afternoon’s drop from 1498.00-1493.00 was just anxiousness. That would make it pessimism, and last-minute pessimism tends to be bullish from a contrarian perspective.

So, an initially favorable knee-jerk reaction up would be bullish, right? It could be. After all, Thursday avoided expending too much optimism while also preventing sellers from gaining traction. That was one of the day’s two bullish scenarios. But that also requires maintaining a recovery. An initially favorable knee-jerk reaction up would still be vulnerable to reacting down sharply.

What’s Next… (Outlook and opportunities)

In any case, not yet reacting down or trending down before the morning’s bias environment lapses would make it difficult to do so later. There is no unfinished business above — the 1506.00 high doesn’t require a retest — but price could still trend up anyway. Back under 1494.00 and 1490.50 at almost any time after the Employment report’s reaction would be likely to trend down.

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