Stock indexes reject probe to new lows and close higher

That’s a wordy title to this post, but yesterday I wrote to beware of a probe down and then watch for either acceptance or rejection of those prices. So far it is clear that the market didn’t want to stay at those lower prices and traders rallied the markets sharply after the rejection became clear. The chart to the left is of the S&P etf. You can clearly see the triple bottom, accompanied by declining volume as the pattern progressed. Sometimes declining volume in a bear market can give a false impression of an impending reversal, but in this case you can see how volume helped define the triple bottom, and with increasing volume today on the reversal back up. Price did probe below the double bottom and what appeared to be slow trading, and the volume seemed to come in on the upside move. It is a clear rejection. Trend is still technically down, however momentum is now oversold and turning back to the upside. There is no clear divergence in the double stochastic shown on this chart, but there is on some of the other momentum indicators I track. The proof of a turn-around will be if the pivot, where the green line is drawn, is taken out, and of course if the blue moving average lines cross back to the upside. The Nasdaq has a slightly different shape to this pattern. I had posted a chart of the QQQQs some posts back and though an inverse head and shoulders might be forming. The push to new lows negated than, however it has now formed an even more bullish (in my opinion) pattern of three drives to a low accompanied by declining volume on the pushes down. It is always possible that a fourth test back down could happen, but this is rare. With sentiment as negative as it is, and with the bullish rejection of the lows, it seems the odds favor at least a test back up to the pivot mentioned earlier. Of course, negative news can always interfere with those odds, but it does seem the market has discounted quite a bit of bad news, and with margin calls and other forced liquidation, it has probably overshot to the downside.