The rally was able to extend another day yesterday. However, the QQQQ has merely been able to move back up to kiss its broken channel, while the SPY has only managed a return to its 50-day average.
We realize that last March the market was able to rally back up into the broken uptrend channels following February's break down event. We believe this time is different though. Ignoring the fundamentals for a moment, since it is possible that the sub prime issue was overdone (we don't think so, but we could be wrong), technical conditions do not favor the bullish case here.
As we noted last month before this correction really got underway, major indices and a large number of stocks, have been under severe distribution ever since the market was able to rally higher from February's drop. In other words, there is evidence that a great deal of institutional selling was taking place into the weak market rally that took place between March and July.
Add to that the fact that the SPY suffered a long term breakout failure in late July; odds are that the rally this week was just an oversold technical rally fueled by a short squeeze. If so, we should see prices start to struggle in their current area.
1 comment:
Hi, looks like you made a good call.
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