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Just a quick update as its been a long day and I’m ready for work to stop.
We have very quickly retraced 50% of the recent correction – I’ve drawn a green horizontal line at 3393 which is half way between the high and low.
Over the past few days, we have broken above both the 20 day moving average and the 50 day moving average. Very strong moves and both buy signals for us to add to stock market exposure in client accounts. However, you can see that today all of the action took place between the 50dma line and the 3393 horizontal line (see the black candlestick on the far right side of the graph. Notice it looks like a spinning top – that is a special candle shape and typically represents some indecision on the part of investors which makes sense as the bulls could not push above the 50% retracement level and the bears couldn’t push below the 50dma.
Friday’s action may give us a clue, but the big consideration is the 50dma – if we can close above it for three days in a row then the 3419 level discussed in the last post is the target to watch for – but it also because the flashing yellow caution light because it represents a level of 10% above the 200dma, a level that has always sent markets back down toward the 200dma (see the blog post from immediately prior to the correction for more on this concept).
However, we have had two consecutive buy signals so that means we are buyer and not sellers until the market tells us differently. As the old saying goes: “yell and roar and buy some more.”
Many thanks to reader Nan for the hat tip that Ms Ready passed away this week and that this song might work for a blog post – many thanks!