An hour into today’s session after the markets had risen over 300 points I took a look at a 5-min chart and realized that we had moved almost a 1000 points in 2 trading hours dating back from 3pm est on Friday’s session. Now I know it’s been volatile lately, but this is the definition of “irrational exuberance.” Has anything changed that warrants that type of explosive move? This has bear market rally written all over it, as it’s these type of oversold states that produce these snap back rallies that get everybody all excited that everything is going to be roses from here on out. Here are a few charts I’m watching to see if this rally can continue or stall out.
I really would have had more confidence in this rally if we wouldn’t have moved so far so fast. The trend is still down and we’ve really only moved back up to the triangle as seen above. If RSI can break through this trendline we may move further than I think.
Nobody can be surprised that the dollar finally caved, but a weak dollar doesn’t necessarily mean a strong market. In fact, the dollar and the markets used to have a more direct relationship than recent days. You can short the dollar via UUP.
This is one chart to watch because if this turns up from here, it appears to be forming a cup with handle pattern with is very bullish and would be very bad for the overall market. For this pattern to play out it almost has to immediately turn up from here. A lot of people are sticking a fork in the Vix here, but I’m not so sure it’s best days are behind it.