Analyzing the Start of This Rally
The market seems to be extending more today and it feels like we are at the beginning of a multiple week move if not more than that. We are a little extended here but if we can flip that 4100 level on the SPX Cash I showed on twitter it feels like we can expand higher.
While it is somewhat fresh, I like to analyze market bottoms/tops and keep them in my OneNote file to learn and be more prepared going forward. In doing this, it seems like there are usually 3-4 obvious clues that preceeded the turn. Sometimes I recognize 2-3 of them in the moment but very rarely all of them. I think I had two of the four key tells this turn.
Lets look at the QQQ Daily and review them. Notes on the chart with more color below.
2B Reversal-You can learn about this pattern in Victor Sperandeo’s book “Trader Vic II” among other valuable tools. But this is essentially and undercut of a previous low that is then recaptured. This occurred right around the 200SMA and the 50SMA. Additionally, the bar it undercut was the 3/2 bullish engulfing bar, that itself, was a minor 2B Reversal. This all occurred on heavy volume signifying that long traders were stopped out on the undercut, short traders were trapped, or new long traders stepped in. Most likely there was a combination of all three.
Unfilled Gap=Strength-On day 2 we saw a gap higher that more or less held the morning low and showed strength all day. I am a big believer that unfilled gaps are a sign people are caught off sides. When the market proceeds to move in the direction of that gap it is a meaningful sign.
Bullish Counter-Attack Bar-On Page 109 of Steve Bison’s book “Japanese Candlestick Charting Techniques” he goes over this pattern. This setup is not exactly how he describes it but is along the same lines. After our first two clues, the market gapped down pretty substantially. This was an opportunity for the bears to distribute the market and put a lid on the rally attempt. However, bulls held the gap up day low and pushed the market all the way positive. In addition to being a bullish counter-attack this was also a bullish engulfing showing signs of strong demand.
195 Min Change of Character- I wrote about this in my 3/15 substack if want to review it but below is a screenshot:
*These steps all happened while the banking news was front and center also. Positive price clues amongst bad news.
**These were the big four key tips. I recognized the 2B Reversal and the 195 Min Character Change (probably most important) but not the Counter-Attack or Unfilled Gap in a meaningful way in real time.
Fed Day Stress Test-The market sold hard the day of the Fed. This created some uncertainty. I sold out some of my positions out of caution. We remained above the 5 day moving average though. The bears needed to do much more to overcome the foundation the bulls had already set.
Light volume shakeout to the 10 day moving average. Up until this point in the rally the majority of the gains were being driven by Big Cap Tech. However, many other names held up well this day and provided clues as to what was to come.
Unfilled Gap=Strength-In a weak or chop market gaps fill. This was a clue of a potential breakaway beginning.
Unfilled Gap=Strength-ANOTHER unfilled gap….STRENGTH.
Major Breakout/Expansion-On the PCE the market really took it to the next level and re-confirming higher on the weekly chart in a major way.
One of the things we saw in this bottom was that a lot of the high beta growth type stuff didn’t really kick into gear probably until around day 7 or 8. So a pretty big window even at the beginning of the move.