Technical Talk: Sell the Rip? Or is it Different this Time?

Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.

Short-Term Trend: S&P in confirmed downtrend but a rebound attempt appears to be underway. Watch the testing of the old support levels at 800ish.

Market Momentum: Both trend and breadth negative . The all-cap market index needs an advance of 9.8% to return to neutral but the A/D line is within 0.22% of returning to neutral, which would upgrade the indicator to neutral. Note that the A/D line has been hanging tough lately, which can be considered a positive divergence.

Intermediate-Term Trend: Intermediate-Term trend negative on S&P 500 and will need to put in a "higher low" or break above 857.35 before we can consider the trend anything more than neutral.

Overbought/Oversold Condition: The stochastics remain oversold on balance. However, our combination model has moved to Neutral where the market has actually gained ground at a rate of 9.3% per year.

Investor Sentiment: Investor sentiment remain negative on balance in response to the dive in the indices - which, of course, is a positive.

The Bottom Line: (From our Daily Decision Model)
With the government announcing this morning that they are standing behind the banks and the combination of the market being very oversold and sentiment being pervasively negative, all the components are in place for a rally. However, we will need to watch the quality of the rally closely for signs of its staying power.

The Current Plan:
Traders have been "buying the dips and selling the rips" for quite some time now. So, the question of the day is if this move - which has been triggered by the gov't effectively saying it will not nationalize the banks - will be any different. There is significant resistance overhead, so we might want to be from Missouri before doing any additional buying (our Trader added three positions into Friday's carnage).

S&P 500:

   S&P 500 Intraday

   S&P 500 Last 3 Months

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