Wednesday, July 07, 2010

Technical Picture - Reversal Day

Today's reversal comfortably recaptures the baseline of the May/June lows on higher volume which means accumulation.

We may have put in a bottom last week when we tagged the the 38% Fibonacci retracement of the March 2009 lows to the April 2010 recovery highs. That would be a normal retracement in a strong uptrend. Technically, the markets were oversold and we were due for a relief rally. The lack of news and data today, seemed to set the stage for a bounce. But, we need follow through in the coming days, in order to confirm today's action as a key reversal day. As depicted on the SPY chart below, we closed at the bearish gap resistance level. Tomorrow's jobless claims and retail sales data will set the tone.

Oversold commodities got a boost from a weaker dollar. Shorts got squeezed as the morning strength persisted into the close. MOS and MON were leaders in the Ag chem sector. MOS paused to consolidate the initial thrust, setting up a solid base for the second leg up.