Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Market participants have been struck with the consistency of a type of rally the past 3-4 years, that is the "V" shaped rally. Once a rarity it has become the rule. No one is sure exactly why it is – perhaps momentum based, computer driven, liquidity fed environments are the culprit but whatever the reason they are not something that happens one out of ten times, but now nine out of ten times. A market that stops going down, turns on a dime, and furiously "V" shapes up without letting those left behind in. So the question of the day across the land is, are we beginning to embark on another?
Yesterday morning I wrote about the "the most important line in financial markets" – that is the line connecting the lows of the dips from October 2011 til April 2012. That level had been breached Tuesday, and typically a market will come back to test that area before moving on to do what it normally does. Now, I had no thought that this level would be tested in 2 market sessions, but that goes back to paragraph 1 – there is no middle ground in markets anymore … either the world is going to end, or everything is hunky dory. I said the approximate level of this area is 1385-1390 on the S&P 500, and we finished at 1387 yesterday. (Again I had no inclination we'd see that level so quickly.)
So now the question is – to V or not to V? Was yesterday day 2 in yet another once rare V shaped rally? Or will things revert to a more traditional type of action and after this oversold bounce. Are we looking at a more serious correction in the days and weeks to come? Bulls will wish for a break through this 1385-1390 level and then a clear of 1400 and holding it, to make a charge at highs from last week at 1420ish. Bears will want to see a break of the 50 day moving average at 1376 and rising sharply every day.
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