Wednesday, April 2, 2008

April Fool Rally?

Is it a little ironic that the S&P 500 Index has a 3.5% rally on April Fool's Day? It has been tough market the last few months, but the first day of the second quarter has gotten off to a great start. This doesn't mean that all of yesterday's problems are gone, but it does mean that for now some of the risk might be priced into the market. This could change quickly when new storm clouds arise, or when some of the old storm clouds come back bigger and stronger.

Below are two charts of the S&P 500 Index. One chart shows the S&P 500 with it's extensions based on the opening range. This chart also shows the updated pivot numbers to watch as strength of this rally day is measured in days to come. The second chart shows the S&P 500 with an indicator showing the percentage of stocks trading above their 40 period moving averages. This is a key chart to watch because it shows that the recent low in prices was not confirmed by a new low in stocks trading below their 40 period moving averages. This divergence is marked with red lines.

S&P 500 Index- Opening Range Extensions (click to enlarge)

S&P 500 Index - % Stocks Above 40 Period Moving Average(click to enlarge)
A similar chart to the percentage of stocks trading above their 40 period moving average chart is one depicting the advance decline moving average chart. This shows a similar divergence, but also shows that the market might be a little ahead of itself with this one day massive rally.

S&P 500 Index Adv-Dec (click to enlarge)

The U.S. Dollar Index chart is important to watch as this large rally day is digested. This index is forming a triangle pattern. The dollar has stalled in it's downward move. This could be because of some anticipated actions by the European Union to coincide with the actions the U.S.Federal Reserve took in previous weeks. If Europe decides to add liquidity and or cut interest rates, there could be some profit taking by investors who have been long the Euro.

U.S. Dollar Index(click to enlarge)

EUR/USD Daily Chart

No comments: