Monday, July 21, 2008
Let's step back a bit and take a look at the latest rally to see what it looks like and where we are in the rally cycle.
The rally started last Tuesday when the market gapped down at the open, but then rallied throughout the day. Although the market fell in the last 30 minutes, the table was set. The market rallied hard on Wednesday, especially after prices moved through the 200 day SMA and broke through upper resistance from a triangle consolidation near the same time. The market consolidated gains again early on Thursday and then broke through upper resistance again. However, from mid-day Thursday through Friday of last week the markets formed a broadening top formation. In addition, today the markets formed another consolidation pattern -- this time a triangle. Notice that after the strong run from Tuesday through Thursday of last week, the market has taken two days to consolidate gains. Also note prices are near the 200 day SMA, which will provide crucial support for a possible rally.
On the daily chart, notice prices are having a problem with the 20 day SMA providing upside technical resistance to the rally. Also note the declining volume over the last 5 days indicating declining buying interest.
What does all of this mean? The rally is stalling or consolidating. We'll know more over the next few days.