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A Powerful Rally, What’s Next?

Published on January 19, 2012

A Powerful Rally, What’s Next?

January 19, 2012

Inspite of all the negative news in the macro economy, US stock markets are surging and closed either near or above short term reactionary resistance areas. Up volume was strong 85% of up+ down volume and for every decliner there were almost 4 advancer. There were 196 new high and 51 new lows.  VIX dropped by 6.27% and the volatility term structure continues to be in contango and SKEW rose almost 4%.

Yesterday Russell 2000 (RUT) outperformed every other major index by rising +1.76%, more that double of Dow’s rise. For YTD, it is up +3.6%. Nasdaq and NDX-100 have been beating to different tunes and those are the only other major indices that have outperformed RUT on YTD basis. At the close yesterday, RUT has cleared a key Fib level at 766.6 that it has been struggling to cross for the preceding 5 days. It closed just below $780 an area of previous price support. The good part is that, all of this past few days’ action has been happening over 200 Days SMA.

Assuming the rally continues, Russell 2000 will face a stiff resistance around 797-803 area followed by secondary area is around 834. While being bullish, keep in mind that RUT will be completing a bearish pattern starting 812 and finally culminating the range at 834. What does this mean to your trading? In simple terms, this means enjoy the rally, but be mindful of zones where bearishness will be emerging (purely from technical perspective). My best guess is that Jan 25th-27th time period (FOMC/ GDP) will probably trigger that.

Having said that, always keep in mind Mr Market can do anything!! Above is NOT a prediction, but just a map that “might” help while evaluating trading strategies/tools. and this is only for short-time frame.

Disclaimer– As always, the above post is only for information purpose only. I open/close position on RUT at various times without mentioning here on the blog.Богородица

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