After getting crushed since September the US indices were up with good and respectable gains last week, bringing up the question if the recent upturn marks the early signs of a market recovery or on the other hand, represents a consolidation before the next leg lower. Time will tell us. You must remember that when measuring the upturn’s credibility, the following is a checklist (the technical wish list) for the signals.
Several, if not all, of the following events must occur:
1. A strong-volume rally that is not driven by government intervention.
2. The emergence of sector leadership.
3. Breadth: One, preferably two, 20-to-1 up days to neutralize last October’s breakdown.
4. A slowing in the volatility to digest the market extreme activities of 2008.
5. From the Sentiment POV we need for analysts, pundits, and talking heads to stop telling the audience how great this buying opportunity is.
6. A strong volume break above intermediate overhead resistance.
Until all of the above are in place another sharp move South is a risk, and therefore capital preservation is your principal objective when it comes to the DJIA, S&P 500, and the NAS. Now the Small Caps, Mini’s and Micros are a different picture, as they are traditionally the leaders.
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