After solid overnight gains, the market drifted lower to fill the gap before taking off higher to test the crucial 50-day moving average. Now, an important battle is being waged between the bulls and bears for control of this market. A cross back above the 50-day, especially if it is accompanied by solid volume, would be a bad sign for the bears. A wave of short (and hedge) covering would likely ensue under that scenario, accelerating the market’s ascent back toward the highs.
Market weakness was short-lived this morning, and select stocks signaled that the market wanted to go higher. Amazon.com, Inc. (AMZN), Marc Sperling’s Play of the Day yesterday on T3Live.com’s Morning Call, never pulled in after gapping up this morning. Other tech leaders pulled in early but bounce quickly and ferociously.
The strength of the late-morning bounce gives the greatest indication that the bears could get overwhelmed in the next few days. Two beaten-down stocks that we highlighted Tuesday as long candidates, Las Vegas Sands Corp. (LVS) and JDS Uniphase Corporation (JDSU), have been extremely strong, up 4.6% and 5.6% respectively. Silver has continued higher after its latest breakout yesterday, and looks more and more like an unstoppable train by the day. Our cloud favorite EMC Corporation (EMC) has also been strong today after two days of rest following a major upgrade.
The market has been in a tight, low-volume bull flag since about 11am ET. It has been the calm before the storm, if you will. If bulls win this battle today, it could end up being a major inflection point in the market. In any case, expect net shorts to head for the exits some time over the next few days. You’ll know when it happens, it will be unmistakable.
*DISCLOSURE: Scott Redler is long AAPL, JDSU, FCX, AMZN, VLO, SLV, GLD, NYX, LEI, SOHU
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