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Rally Still Looks Good – In Spite of Down Day

5-Minute Chart - Day Three of Rally

5-Minute Chart - Day Three of Rally

Well we are into day three of the Rally (OK, maybe it’s still a small “r” rally, but let’s be optimistic) and the chart still looks promising. You can see that even though today was a down day with the market absorbing the past two big up days, at no time did the market even approach the low from Friday, the last day prior to the Rally beginning. Also, if you look at the volume for today (you can see it on the chart below, but not the one above) the volume on today’s down day was less than on yesterday’s up day – another encouraging sign.

If you’ve been following this series of posts, you’ll know that for this Rally to have legs, we want to make sure that we don’t have an intraday move in the market below Friday’s low that I’ve circled on the chart. So far so good.

What we want to see in coming days is a big up day on volume that equals or is higher than that of the down days during the sell off that started a couple of weeks ago. IF we see that (and there is no guarantee that we will) then that is a sign that investors sentiment has improved and you can start to put some money to work that you have on the sidelines. No guarantees, of course, but in general we’d be looking for he market to move up toward where it peaked prior to the sell off.

In the chart below, I think there are a couple of things you want to notice.

Does the Current Correction Mirror the October Correction?

Does the Current Correction Mirror the October Correction?

First, you’ll see I’ve drawn in the retracement lines from the peak prior to the selloff to the bottom of the selloff. You can see that we’ve retraced the statistically significant 38.2% of the selloff. It is no wonder that today gave us a bit of a breather – this is very common and actually healthy for a rally. What we want to see is it move up through the 38.2% line and tackle the 50% retracement line.

Second, does this correction and rally look an awful lot like what we saw in October? So far, it does to me with the market on track to continue flying up to new highs. But, its always better to invest what you see than what you hope – that’s why we watch charts.

Your trivia for today has to do with the group singing above. Two of its members left the group at the height of their popularity and went on to have a chart topping single that won a Grammy. Can you name the duo – hint, they were married – and name the hit song. For bonus points, name the TV show that one of the duo hosted in the 80’s.

Mark