Monday, May 21, 2012

An expected rebound

Overall the markets rebounded today as expected.  As I mentioned in my previous post SP-500 index tested strong support levels at around 1290-1295 zone and bounced back.  Now the bigger question is does this bounce have conviction.  While the DOW, NASDAQ and SP-500 made 1.09%, 2.46% and 1.6% move respectively, the number of stocks participating in the move did not impress.  In order for the bounce to stick we need to see some quality stocks setting up and break out and also a large number of stocks carry the market upward.  Given the correction in the last few weeks, the stocks need time to setup.  We may retest the lows and chop around a bit at this level which could potentially be lethal for your portfolio.   So it is best to remain in cash and watch for a buy signal from the market (read my post on market momentum index).  There are a few charts showed up today that could have a potential follow through to the upside.  As always use proper position sizing and risk management and honor your stops.

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