The market appears to be making some traction to the upside. We have not yet had a follow through day which increases the probability of further upside, often referred to as an odds favor outlook. However a number of events have transpired which tempts one into making one or two purchases and waiting to see how they perform before adding more.
1. On February 5th after being down big the market recovered to end the day barely changed. This is often referred to as a capitulation day as the last of the sellers pile in only to be overtaken by large buyers later in the day as people decide enough is enough. Volume wasn’t great however the intraday recovery was worth noting. See the circle on the graph.
2. Since February 5th we have had a formation of higher highs (the peaks) and higher lows (the troughs). See the straight lines on the graph.
3. The fed decided to raise the interest rate charged for inter bank loans which would normally be a big negative. The market just shrugged off this bad news and took the view that if the fed feels it is time to start tightening money then the economy must be through the worst.
4. The Dow and other indexes are all now in the process of crossing their 50 day moving averages which would usually be the resistance level. If it clears easily it is also a bullish sign to see this happen but it would be even nicer to see it happening on volume.
To conclude we have not had a follow through day so we are still in a high risk situation. However for the more adventurous readers we have had some more optimistic signs recently and dipping your toe in the water in a controlled manner at this point would be a reasonable thing to do. As long you use the money management rules previously discussed then little money can be lost.
Over the coming days as long as the market doesn’t resume its downtrend I will be highlighting some stocks for my readers to consider.
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