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Stocks Rally But Don’t Expect It To Last

ByMichael Kramer
Published 10/04/2022, 03:32 AM
Updated 09/20/2023, 06:34 AM

Stocks managed to rally yesterday by 2.6% on the S&P 500. It mainly looked to me like short-covering once again. We seem to see these types of moves pretty often, and maybe it turns into something, but I doubt it. I still think we are at the start of wave five down, and yesterday’s rally completed a broadening wedge. The E leg stopped rising basically where it had to.

Additionally, the S&P 500 could only fill half of the higher gap. But there are more telling signs on other market indicators that may be better to look at.

S&P 500 Index Chart

Nasdaq

If you look at the QQQ, we can see that the rally yesterday took us right back to the lower end of the bear flag pattern, where it stopped.

QQQ 1-Hr Chart

Small Caps

Meanwhile, the IWM rose yesterday by 2.65% and only managed to fill the gap at $169.90 and stopped.

IWM 1-Hr Chart

The point is that at least these three major indexes and ETFs stopped rising and reversed where they had to to keep the rally from turning into something more. Does that mean we can’t rally higher again today? Of course, we could rally today, but if you are bullish, you not only want to see a rally, you want to see the SPX, QQQ, and IWM all gap higher and above those resistance levels. If not, then I think that may be all for now, with another leg down to come.

Tesla

Tesla (NASDAQ:TSLA) was down 8% yesterday after reporting delivery numbers that fell short of estimates. It certainly isn’t unusual for Tesla to miss deliveries. But the market didn’t like it and closed below support at $246. At least at this point, $246 will probably become resistance, and the new support level is now at $225.

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Tesla Inc Daily Chart

Amazon

Amazon (NASDAQ:AMZN) doesn’t look much different from the QQQ, with the stock hitting up against resistance at $116.40 and the lower trend line of the bear flag pattern. So could it go higher, sure, but again, you want to see it gap over those resistance levels. If not, then this rally is probably over.

Amazon Inc 1-Hr Chart

Original Post

Latest comments

The last few days may have been short covering followed by short sqeezing....this is a dead zone until clear signal shows
Well Kramer ....... we are waiting.
interested to know if where things close today changes this theory
As always makes the small investors to SELL because  wow..... there is crash coming.  The stocks goes down in price and people like you + fund managers will buy OUR stocks on lower prices. NO WAY we will NOT SELL.
This broadening wedge is also an expanded flat which will close the gap in the 5 wave up.
Buyers must think it's the bottom, but inflation and rates aren't at peak yet and the warnings reports being negative or missing haven't come in yet so we can't be at bottom. Many stocks still way too high on P/E basis. Tesla is ridiculous triple figures.
This right here "It mainly looked to me like short-covering, again. We ... see these types of moves pretty often ..., maybe its something...but I doubt". This exactly is what separates you from a seasoned analyst. You are heavily opinionated. You may think 2020 might have humbled you, but no, still have much to learn. your technical analysis might be good but that can all be irrelevant in a whim. You gotta know by now anything can happen and that you are in a probably game. The stock market (not the economy) its a casino, speculation is the name of the game. people invest their hard earn money following analysis, be responsible. we don't care what you think or if you are certain or in doubt. share your TA, present your thesis, and humbly accept there are more forces you do not know and you are not aware of. To his followers: Be careful out there and manage your risk.
well as you know i am a little biased to the upside. I trade futures, right low low size bc of the recent volatility like today for eg. I went long on a couple of contracts for 15 min opening range breakout. man it was a beautiful move, hope every day was like today (not just to the upside) but clear moves. I am done for the day, we will see what tomorrow brings. The move imo seems a little extended. Surprisingly I actually was biased on a green day but more in the consolidation channel, but jeez its going strong. we will see tomorrow or in a couple of days if this move is valid, i will see what tomorrow brings.
actually i correct myself, wasnt really expecting a green day since we ended on top on the channel yesterday, but still took the breakout. i am interested to see how this week will end, but for shorts it gets interesting too, now now you can start thinking of putting a plan to go short. not on fridays bottom, neither on next trading session (monday) for continuation. that is why i rant a lot with these type of opinionated analysts, i mean yeah his analysis is good its just how he writes and that he is extremely biased. some inexperienced people read these articles and sold right away because they read "stocks should fall even more, they are not done" maybe but unlikely without pullback moves. I hear that his material is probably not for short term day traders but still.
Yeah, this seem too fast....I don't normally short, if I do it's small amounts. I agree, sit back and watch mostly to see what happens, but I am assuming more downward ultimately
After you post to short then it bounced
It seems technical levels and perhaps a new narrative (UK government reverse plans, RBA more dovish, ISM weak that possibly break FED hawkish plans,  and maybe other fantasies) support a rally. But next week CPI and inestable cross currencies maybe would pose in risk this new narrative. Looks like all this year Apple is the last Big Tech to fall, and it can fall further...
As always best article thank you micheal
I am thinking more along the realistic lines of history repeats itself and in every other recession stock markets sure we're not where they are now.
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