A two-day rally, can we get to 4,400?!
The day began with positive news regarding the peace talks between Russia and Ukraine, which made the S&P gap up. Later in the day when the Fed announced the rate hike, the S&P gave up all its gains and more. However, when Powell gave his speech with very positive comments about the USA economy, the S&P recovered quickly and even closed above the morning highs.
Reviewing the daily chart it's possible to see that the 4,250 was broken during the first day of the rally, let's see tomorrow if the S&P can hold above the 4,330 resistance and turn it into a support. My personal point of view is that getting to and holding above 4,400 is going to be a lot harder.
During the first week of March the S&P tried to rally past 4,400 and failed (orange arrow). There had been other times where the S&P has used 4,400 as a support (green arrows). Every trader that pays attention to support and resistance levels will see the congestion zones, some of those traders will think that the rally will fail at the 4,400 resistance, others will have the belief that this time the resistance will break. All those beliefs will be translated into buy and sell orders, during the last couple of trading days of the week we will be able to see what's the strongest belief.
If we check the New Highs and New Lows numbers, the New Lows fell significantly. It would seem that the Market is rallying because the Bears are losing force and not because the Bulls are getting stronger. The New Highs did increase but not that much. Sometimes when the selling pressure is exhausted, the Market can rally without much demand, during the next couple of days we will see if that's the situation. If the rally begins to stall or maybe the Correction resumes, then what we just saw was a reaction rally.
I haven't changed my opinion, which I have posted several times in the last few weeks. For me a significant rally must be at least one that breaks and holds the 4,400 resistance, and ideally, it should get to 4,600. In order to get past those levels the S&P will need to rally multiple days. Another good characteristic I'm looking for is that the New Monthly Highs increase (column G of the screenshot above) and the New Monthly Lows decrease and stay below 500.
I have now three long positions open, I started opening them on March/11. They are all in the Industrials Sector, I want to get a real feeling of how the Market is moving. They all have already hard stops in place, and if the rally begins to stall, I might close them without waiting for the stop to trigger. Whether this Correction turns into a Bear Market or not, whether it lasts 1 more week or 2 years, it doesn't matter, eventually another Bull Market will start and preserving capital through strict Risk Management will be the key element in order to be ready when that Bull Market starts.