Stocks close sharply higher after reversing down opening

sp0131.pngStocks opened sharply lower on the unemployment claims report, but then reversed and rallied sharply on optimistic comments by bond insurers, at least that’s what being attributed to the cause of the rally. The character of the intra-day movements looked a lot like short covering to me. If the bond insurer news caused the failure of the rally yesterday, then any positive comments could very well have caused shorts to run for cover. The bar left yesterday had a very bearish look, especially with the existing downtrend and momentum being overbought and looking like it was ready to turn back down in the direction of the trend. Some of the shorter term momentum already had turned down. I suggested the negative look to the chart would be negated with a move over the upthrust bar of yesterday. The high of that upthrust was tested today, with the close slightly under it. It’s anybody’s guess if this rally will continue and eventually reverse the down-trend. And it’s really a flip of the coin which way it will go in the next day or next hour. A reversal back down tomorrow or Monday would cause momentum to turn down and then there could still be a test of the recent lows. If there is follow-through and the pivot from yesterday is convincingly taken out, then there is probably more upside, even with momentum being overbought. I don’t think it would be a very comfortable trade to be long in a downtrend with momentum overbought, but anything can happen. In other words, I’m sitting on my hands until the technical picture clears up.
Pit session gold was up, the gold etf was down. The difference was in the sessions times relative to the Fed announcement yesterday. I’m still waiting for some air to be let out of this bubble, but there is little evidence of this being imminent, so far. The first thing I’m looking for is a break of the pivot of a couple weeks ago, which on the April contract comes in about the 923 area (the previous comment was on the Feb contract, which had that pivot at a lower price). At the moment trends are sharply up and momentum is still higher, although overbought with some divergences developing. My main reason for looking for a reversal is the same as with the dollar, that is the sentiment is far too one-sided.

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