By Marlin Cobb, aka @RedlionTrader
So the first question after a 2%+ thrust day is will the next day follow through. That is, will we have another day where we move up and close on the highs? This kind of move is often called a follow-through day or FTD and is verified with higher prices and volumes. The FTD is a very strong bullish signal on the upside and is used to mark the start of a bull rally.
So far, as I write, we are pretty close to a flat open, down about 0.25 on the ESZ futures. My expectations for today based on moves like yesterday are either:
1. The market retraces more than 50% of the previous day move (bearish – sellers are not done yet).
2. The market puts in an NR7 (narrow range) consolidation day (mostly bullish).
3. The market puts in another strong upside day (very bullish).
The only bearish scenario is a market that is too weak to hold 50% of the gains after a launching thrust like yesterday. Holding a narrow range day is still a small victory for the bulls and I would play it for higher prices in days to come with a larger news bias.
So I haven’t really told you much except to expect prices to go up or down or sideways today. Wow, great insight! OK, here is what I would do today. I would come in expecting a range day -- that is, the day will set a narrow range and your return-to-mean indicators (RSI, stochs, etc.), which you tried to use yesterday to short the trend day, will once again most likely work today. That is because the highest probability is consolidation which occurs in a nice range, but caution is needed through the day as the sides build their bias and we could pop that range quickly in either direction. So wait to see if a range is established, watch the first 15 minutes and use caution as the day progresses.
So enough about today, let’s talk about tomorrow. I have a really great signal for tomorrow if we get a green close today and an S&P500 A/D line above 2.25:1. If that happens there is an 85%+ chance of a third green day. Those are the type of days you can hear the bears gasping for air. So watch the range today, if we break to the upside, watch the S&P A/D line for a possible third follow-through day. We are measuring the strength of the breadth. So far so good for the bulls.
Taking a quick look at that Zweig indicator, you can see the nice strength in the ZBT, now sitting above 50. We have started a 10-day count for a Zweig Breadth Thrust. Today is Day 2 and our goal is 61.5 before we get to day 10. If that happens you will know because you will get flooded with tweets and e-mails.
Marlin Cobb, aka @RedlionTrader, is a ten-year veteran of trading the markets full-time. A retired engineer and businessman, he has devoted his second career to understanding market breadth and sharing that work with the trading community.
You can see more of Marlin’s work at http://redliontrader.com
- It’s 7:00 a.m. and the ESZ is down 2 handles at 1380.50, crude is down 46 cents at 88.82 and the EC is trading 1.2806, down 5 ticks.
- In Asia 5 out of 11 markets closed higher with one unch’d (Shanghai Comp. - 0.4%, Hang Seng -0.16%).
- In Europe 9 out of 12 markets are trading lower (CAC -0.11%, DAX +0.06%).
- Today’s headline: “U.S. Stocks Seen Lower After France Downgrade.”
- Economic calendar: Today: Housing starts, Richmond Fed's Lacker speaks, Bernanke speaks at the Econ. Club of New York, Kindle Fire HD w/4G LTE ships and earnings from Hewlett-Packard, Best Buy, Campbell Soup, Chico's, Salesforce.com. WEDNESDAY: Weekly mortgage applications, jobless claims, PMI manufacturing index flash, consumer sentiment, leading indicators, oil inventories; earnings from Deere . THURSDAY: MARKETS CLOSED; Thanksgiving! FRIDAY: Black Friday - NYSE closes at 12:00 CT / CME closes at 12:15pm CT
- Fair value (7 a.m.): S&P -3.40, NASDAQ -9.50
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