In my intra day analysis on stocks and indices I am formulating a setup for the rest of today and into tomorrow which will tell me if this rally is for real or just short covering.
The first part of the thesis hinges on a group of stocks that have rallied strong, are yet to be overbought but nearing resistance on the daily chart: AGU, POT CF, AAPL, BIDU, CAT, BAC, APKT are a good list of examples. Similar characteristics are a Daily MACD positive cross, but below the zero line on the daily and intra day all but BIDU are on an R4 breakout buy signal..
The next part of the thesis is the broad markets ESZ1 and NQZ1, neither index is breaking out intra day or overbought on the daily charts after an excellent run up.
The last part of the thesis is that names that have been technically strong such as IBM, SNDK, CTSH and CELG are now all overbought on the 14 day RSI.
My mind interprets all of these factors into the following thesis as I write this at 2 pm on October 11, 2011: The broad indices and the names listed in part 1 of the thesis rally strong into the close of today and/or the close of today and the open of tomorrow, I mean really strong. Strong enough to get them overbought which none of those names are close to doing at this point. The velocity of this move is important so the RSI can move up quickly into resistance. A break of these key levels means the market is full of real buyers and a fail means that the shorts got scared and it may be time to head back down for a testing of support.
On ESZ1 the 1210 to 1215 level is my target for this move and a pullback to 1167 is where I would be covering a short trade. NQZ1 the target is 2315 to 2320 with a pullback to 2252 as support.
AGU: target is $77.50 to $79.75
POT: target is $50.10
CF: target is $153
AAPL: target is $404
BIDU: target is $130.50
CAT: target is $83.00
BAC: target is $7.04
APKT: target is $44.35
Target is the level of resistance that I am watching to either short against or realize this is a strong rally. There are a number of other names out there, steel sector, Ag names, financial stocks. Not seeing the strong names rally today alerted me to this thesis. If this does not happen by 10 am tomorrow than I will have to reassess what my market “tell” is.