one day of stock market action that changed bear to a bull

Today’s action in the stock market was absolutely huge.  Today’s action was a clear demonstration of the power of the bullish divergence.  This was a shorter term bullish divergence of the most powerful variety and led to enormous price advance and typically leads to sustainable ‘running’ price advance.

In other words, this should mean that this rally will be quite persistent with pullbacks that are ‘contained’.

Today’s price action in the sp500 is already starting to change the long term YEARLY price candlestick chart and allowing the yearly chart to have potential for bullish prospects.

In addition lets not forget that we are in the last month of the 2nd quarter and so if the market can finish this month strong then it will also be finishing the second quarter strong which will have a positive effect on the quarterly MACD and the quarterly MACD histogram structure.

At some point later this week I will follow up this post with a few charts that describe powerful evidence that this mini bear leg is DONE.

The evidence is starting to pile up.  I will point them out in a bulleted list for now until I post the charts later this week.

Onto the list:

  • The IYT transports ETF transportation index completed a bullish Fibonacci pattern.
  • The UUP us dollar index looks like it has completed a bearish Fibonacci pattern (which means it should be headed down)
  • The FXE euro ETF looks like it has completed a very large bullish Fibonacci pattern (which means it should be heading up)
  • The GDX gold miners ETF recently completed a bullish Fibonacci pattern (the thinking goes that gold stocks typically lead an inflationary advance up first and are the leading stocks of any general stock market advance.)
  • The FXI and EWG ETF’s (Germany ETF and China ETF) completed bullish Fibonacci patterns recently.
  • Todays HUGE topside action is the type of action that is usually a signal that the completed Fibonacci patterns are working.
  • The QQQ appears to have done a successful Wyckoff classic retest of its breakout range.
  • The downside volume on the recent mini bear decline was weak at best.

We have a lot of powerful combined evidence to suggest we are heading higher from here for quite some time.

I have a little confession to make as well today.  I believe that once again the ‘news’ as distracted me a bit from making the above conclusions a bit earlier.  I have made this mistake in the past, but I assure you that I will NOT be making it again. 

The temptation to read news about Europe or keep up with the latest dire statistics can be extremely distracting and makes it difficult to keep a clear mind.  Yes there is the Greek Election coming up in addition to plenty of other news, but the problem is we never know how the market will perceive the news and the seemingly bearish news can always be spun as bullish or the news could be quite good.  There is never really any way to know for sure.  For this reason one has to be very careful about getting too involved with news or even reading others forecasts or reports.

Also, trading chatter sites and forums can be extremely distracting from maintaining ones own clear and solid opinion of the market.

For example there was recently a report circulated all around the internet that was extremely bearish and essentially said that stock market exchanges would be closing etc. etc.  The problem is that this kind of report is too general and is not based on FIBO patterns.  One of the primary assertions of the report is the large head and shoulders patterns that seem to indicate a ‘total collapse’ of the world economies.

The problem I have with this is that these head and shoulders patterns are open to debate as whether they are valid or not.  There were many periods in past history where the market traded in the form of many ‘mountains’ where it looked many times like huge head and shoulder patterns were forming but it was proven incorrect.  They were simply large swing trading ranges.

Also, this Global macro advisors made similar bearish predictions in 2010 of May, but since then the market shot up much higher from that level.

The USA markets have behaved much stronger than European indices.  The USA markets have had very strong relative strength which is very notable.  It tells me that the diversity of the USA economy is serving as a flight zone for capital from Europe. 

It is also worth noting that the USA markets have done at least a 78% retracement of the entire bearish decline from the 2007 peak.  This says to me that a complete new bearish market that goes all the way back down to 2009 lows is much less probable.  Had it only been a 38% or 50% retracement might have changed that outlook.

I think one has to really keep an open mind from this juncture.  The bear case has weak foundation from here onward in my opinion.  And now we are heading into end of Quarter and end of Month which could have a strong bullish bias and serve to paint up the charts in more robust bullish fashion.

Some more charts later this week..

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