This remains a “Market in LUie Land” as the recoveries in techs and other names that were beaten to a pulp on June 9th continue. All of these recoveries are occurring as L-shaped “bear flags” morph into U-shape “LUie” formations in defiance of conventional technical analysis. If this were all new to me I might be amazed at the sight of these LUie-type moves. But I myself am all too familiar with this set-up since I first identified it long ago, as most members who’ve been around for at least a little while know.
The biggest LUie formation in this market can be found in the NASDAQ Composite Index, which has been busy turning its own post-tech-wreck sell-off “L” formation into a “U.” Russell Index re-balancing on Friday created huge volume levels for the market, giving the index the look of a powerful 10th-day follow-through on Friday.
Whether you follow the whole follow-through day concept or not is not, in my view, relevant, however. For me, the bottom line is that until the NASDAQ breaks support at the 20-day exponential moving average followed by a breach of the 50-day moving average, the rally remains intact.
While we can go into minute detail about distribution days within the pattern as I showed in my blog post Thursday evening, the true state of the market is reflected in the action of leading stocks. And while many of these broke down with the market on the tech-wreck sell-off of June 9th, most have recovered and set up again. That tells the real market story as I see it.