If you're a regular reader, you'll know that I'm more into fundimental analysis than trading on technicals. However, at this point, I'll take any excuse to say that the market is turning around.
After the Fed announced today to accept Mortgage-Backed Securities as collateral on Treasuries (essentially allowing banks to NOT have to sell/write down the MBS while being able to get needed capital), markets exploded upwards. Above is a three-month chart of the S&P 500 ETF.
Looking at the chart, three very important things happened today.
- The RSI touched the "oversold" line (30) yesterday and bounced today, as buyers entered an oversold market.
- Yesterday's close tested the January lows/resistance levels, and the market popped off of those, suggesting strong support at that level. When the market rallied late January, many analysts said that the market had to move sideways and test lows before it could move up for good; after a month and a half of volatile movement, we've retested lows, and apparently, bounced off of them.
- Lastly, on the MACD lower indicator, the gap is closing, and a cross will suggest a bigger change-of-trend.
However, keep in mind that, after a day of 3-4% gains, some sideways or downward action is reasonable, if not necessary. I'd love to see the market up another few percent tomorrow, but such an outstanding day (the best in five years) may prove itself a hard day to follow.
Just a reminder - this weekend I sent out my first edition of the StudentStocksLetter; email me (firstname.lastname@example.org) if you'd like to be added to the email list. Starting this week, I'll also be detailing trades from the previous week.
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