By: Scott Redler
Last night on CNBC Asia, we discussed the latest market action and outlined the case for a bullish push higher by the broader indices. In late January, I first cautioned readers that this market was “Hanging on by a Thread“–the leading stocks all had cracked while the indices made highs and good earnings by stocks such as Intel (INTC) and IBM (IBM) were sold off aggressively. That marked the first significant complexion change since the second leg up off the March 2009 lows began in July. On CNBC Street Signs in late January, I pointed to the 1,040 area in the S&P as a good strategic level to look for some longs.
After the powerful reversal day on February 5th, the market consolidated in a tight range. When that range resolved to the upside, we had confirmation in our plan that a 10% pullback would be buyable. As technicians, we do not like buying aggressively as prices approach support. Rather, we wait to see a level hold and look for a good risk/reward setup to execute on our plan. The wedging action following the February 5th reversal gave us our trigger. After the powerful bounce, we had yet another excellent technical pattern develop–an inverted head and shoulders in the major indices. The pullback came overnight with a big gap down on February 25th, and since that day we have done nothing but cruise higher. At this point, the path of least resistance remains to the upside and we will continue to trade with that outlook until we see another complexion change.
