Technical Analysis: Too Much of a Good Thing?

Mae West may have said that too much of a good thing can be wonderful, but that’s not always the case with the stock market. Take today’s 90% upside day (volume and price action) on the NYSE. Paul Desmond of Lowry’s Reports, who pioneered the study of such buying and selling climaxes, said odds are about 75% that an isolated 90% upside day — not preceded by panic selling — can mark exhaustion or a blow-off top. “The market doesn’t necessarily turn down the next day, but most of the energy is spent on the first day,” Desmond said in an e-mail earlier this evening. “Isolated 90% upside days not preceded by evidence of panic selling are usually the result of news announcements.”

That said, it sure was one impressive day. The Nasdaq (first chart below) could head back to 2375 resistance, with 2390 above that. 2328-2333 should once again be solid support. The Dow (second chart) could be headed back to the major resistance level of 11,350-11,426, and support is 11,225, 11,150 and 11,100. The S&P (third chart) faces major resistance at 1314-1316, and first support is 1300. Finally, a nice break from rising long bond yields (fourth chart) today.

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