More importantly, the market is also in a position to post a weekly closing price reversal bottom to go along with Thursday’s daily closing price reversal bottom. This is an indication that the rally may begin to grow legs, especially since it was fueled by a catalyst.
Seasonally, it’s a little too early for a major bottom, but from a technical perspective the market was hitting a low-priced support area under oversold conditions. So the rally is not too much of a surprise. Speculators could come in to support the rally. This could also scare out weaker shorts. My guess is that aggressive fund buying may try to hit stops above $2.808 and the main top at $2.905.
Taking out tops is one way to spook a weak short and draw the attention of speculators tracking breakouts and reversals from technically oversold areas. It’s these types of traders that could try to drive the market into the 50-day moving average at $2.999.
Not only is the 50-day MA resistance and the trend indicator, but it’s also a potential trigger point for an acceleration to the upside. A breakout over the 50-day MA could attract even more technical buyers, but a move into the 50% level at $3.107 could start to attract renewed selling pressure.
I’m not a big fan of quick reversals because they tend to fade away just as fast. I feel this particular pattern will see the same fate. The best rallies usually come from support bases. I don’t see that pattern here, just a series of lower-tops and lower-bottoms, which is the classic definition of a downtrend. A fast rally and a quick end may actually be a good thing as long as the correction doesn’t take out $2.592. The best pattern for a rally later in late spring or early summer will be an elongated support base and a bullish catalyst.
My short-term outlook isn’t bullish per se unless you call a sharp short-covering rally bullish. The first two days from the low at $2.592 is impressive, but what would be even more impressive would be a surge into the 50-day moving average.