Today, the US Stock Market had one of the best rallies in years. The Dow went up over 416 points for a 3.55% gain. The S&P 500 bounced off the previous lows of around 1272 to make a 3.71% gain to 1320.65.
Is this the double bottom we have been waiting for? This blog expected a re-test of the lows of 1270 on the S&P 500. We recently tested the bottom and successfully bounced. But does this mean that we have a solid bottom?
The intermediate trend is still down. This may be just an oversold rally with massive short covering.
If our stock market breakdown scenario holds, we could be forming some sort of handle, in preparation for the next leg down.
In the chart above, we still see the S&P 500 in a downtrend. The S&P 500 is still underneath both the 200 and 50 day moving average.
Two resistance areas are the 50 day moving average, and the 50% retracement (from the 1396 to 1270 drop) line of around 1330. This 50% retracement also happens to hit other previous levels of support and resistance.
If we draw a triangle estimating the 50 day moving average trend and the 50% retracement line, we can see a future potential area to start a new short position.
But we can afford to wait and see how this market reacts before finding a good place to short.