The technical context for a market rebound was already brewing by Wednesday, as I discussed in my report of that day. Most beaten-down former leaders and current short-sale targets were in what I call “undercut & rally” or U&R Land and in a logical position to bounce. And when the NASDAQ Composite and the Dow Indexes both tested and rebounded off their 200-dmas on Thursday, the oversold rally was on.
The week started out with a sharp decline caused by fears of recession, but Friday’s jobs number told a story of Goldilocks as the tepid 136,000 jobs created was seen as enough to stave of recession while weak enough to keep the Fed interested in lowering rates. The number didn’t even exceed the margin of error for this widely-watched Bureau of Labor Statistics number, so I find it easier to understand the rally over the past two days from a technical point of view.
A sharp two-day rally sent both the Dow and the S&P 500 back above their 50-dmas, albeit on light volume Friday, as both indexes filled the gap-down window from Wednesday’s action. The extreme v-shaped action with a big two-day sell-off followed by a two-day rally of nearly equal magnitude is a trademark for this market. But the technical context for such a rally was already there as I wrote on Wednesday before it began.
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