A Short Covering Rally

I am the first to tell you that there are smarter technicians out there than myself. Which is why I make sure every time one of them is in the press I check in to find out their opinion on the market. Below are the thoughts of Mary Ann Bartels, the head of U.S. technical analysis for Bank of America/Merrill Lynch.

From the WSJ:

Just when the market was on the precipice of breaking key support on the S&P 500, ECB president Mario Draghi comes to the rescue with the promise to do whatever it takes to preserve the euro. Global equity markets responded positively. The S&P 500 reversed sharply on expanding volume to break above the previous high of 1380 to continue to rally to test resistance at 1400-1425 and the May 2008 high is near 1440. Key support is 1325, which held last week.

All is not rosy with the technicals on this breakout.

We have been making the case that the recent rally was more short covering than new demand (buyers). The technical indicators confirm this with negative divergences in price momentum and market breadth. If these indicators do not shift more positively, a potential correction into September is still on the table.

I tend to agree with Marry Ann. From what I’m seeing, momentum has not been participating in the rally’s the major markets have been experiencing, setting lower highs with each new high in the market.

Source: Shorts Eating The Rally, Biding Their Time

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+.

About Andrew Thrasher

Andrew Thrasher is a Portfolio Manager for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.

  • innertrader

    This article wasn’t very interesting. All that was said was, it’s going higher, unless it goes lower. I’ve traded for 44 years, professionally, and I’m bearish, but I’m a trader not a crusader and I know how to make a trade. If the S&P 500 is making new highs for this move this Thursday, and gives me an inter-day sell signal, I’m getting very short with a stop at the high of the move at that time. Does that mean I’ll get the opportunity? Does it mean it will be a profitable trade, who knows, but I’ll know my risk and if I’m right I’ll make a great trade! If I’m wrong I’ll take a limited loss and continue to manage the 17 other markets I trade. If I’m right on this one, I’ll press it… but I always do; and I’ll still continue with the other 17 mkts no matter what. It’s just another trade… but I will make it if given the opportunity. The problem is that ABSOLUTELY NONE of this is helpful to you in the long run AND I’m not sure it’s helpful in the short term.

    • Thanks for your comment. As you’ll notice with my blog I try to pull analysis from other technicians like Mary Ann from BofA. Will every citation be ground breaking and/or market moving? probably not. But when an analyst I respect comments on something I find interesting I post it.

      Thanks again for the feedback, it’s always appreciated.

  • So, pretty much irrespective of technicals or fundamentals the markets move on the sentiments expressed by (or read into) the words of central bankers.

  • whoah this blog is magnificent i really like studying your articles. Stay up the great work! You know, a lot of individuals are looking around for this information, you can help them greatly.