When headlines hit and emotions run rampant, I look to the charts to measure the technical action. After measuring the strength on three different time frames, I see that this rally is still intact. We have haven’t violated any of the major retracement zones. Typically, you measure the strength of a move by the size of its retracement. When you retrace more than 50% of a current move it puts the long term trend in jeopardy! The market has not retraced more than 50% on any of the following time frames.
Chart 1
March low of 2009 667 to February high of 1344. The move to today’s low of 1261 is only a 12% retracement off the highs. That long-term trend is intact.
Chart 2
From September low of 1039 to February top of 1344. With today’s low of 1261 that is a 25% retracement. That trend is still strong.
Chart 3
The most recent move from November low of 1173 to February top of 1344. With The move to today’s low of 1261, this is a 50% retracement which is the area that had to hold and it did.
So all in all, dip buyers are still rewarded. Active traders shorting extensions and looking to leaders for big tier buys are ahead of the curve. Stay disciplined and strategic and the volatility will not run your life.
*DISCLOSURE: Scott is long AAPL, RIMM, SLV, X, NYX, POT, GLD, AMZN, V, F; Short SPY.
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