Stocks Soar On EU Bailout

Stocks Soar On EU Bailout

The technical action in global equity markets is not promising. At this point, several European stock market’s have fallen over -20% from their 52-week highs which technically defines a bear market. The major US averages are all trading below their respective 50 DMA lines which is not healthy. It was also disconcerting to see volume dry up on Monday as the major averages “bounced” from egregiously oversold levels, which usually suggests massive short covering, not new buying efforts. A host of leading stocks closed near their lows after a very strong open which is a subtle, yet important, sign of distribution. However, if this market resolves itself and wants to go higher, we will need to see a proper follow-through day (FTD) emerge before a new rally can be confirmed. Monday marked Day 1 of a new rally attempt which means that as long as Monday’s lows are not breached the earliest a possible FTD could emerge will be Thursday (Day 4). In addition, if Monday’s lows are breached then the day count will be reset. Taking the appropriate action on a case-by-case basis with your stocks prompts investors to raise cash when any holdings start getting into trouble. Trade accordingly.