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Technical Analysis: Stocks Reverse Back Up

A nice reversal for stocks today after yesterday's breakdowns, and on rising volume too. As we said yesterday, the internals have not deteriorated on pullbacks, showing that sellers remain scarce. That said, new highs have yet to expand in this rally, so it is still lacking in leadership, and today's NYSE internals could have been stronger for the large point move. One sign that stocks might reverse today was when the equity put-call ratio spiked to around 1.0 on this morning's modest pullback, showing that some healthy caution remains. However, other sentiment indicators are not so positive. The VIX (first chart), the options volatility index, continues to plummet despite a lack of new recovery highs in the indexes. However, the VIX could fall to 20 before the market tops out, as it has at other peaks. Another negative is that Investors Intelligence bears fell to 24.7%, approaching multi-year lows in the 22-23 range. The Nasdaq (second chart) may gap over its August high at 1426.76 tomorrow. If it can hold that breakout, 1500 could be in the cards. 1400 and 1390 are support. The S&P (third chart) was the only index that didn't break down, holding onto its uptrend line today. That line, at 900-905 tomorrow, is now critical support. Resistance is 1917, and above 925.7 the index could have room to 950-965. The Dow (fourth chart) has resistance at 8640 and 8750-8800, and 8500 is support. The SOX, the semiconductor index (fifth chart), completely reversed yesterday's breakdown with a bullish engulfing today.

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