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We had a key reversal day back to the 100 day sma and off the 40 RSI on Wednesday October 9th.
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The next day on Thursday October 10th we had a powerful reversal that gapped to the 50 day and then ran back over both the 10 day sma and the 5 day ema.
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For seven days the 5 day ema has held as support.
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Seven straight trading days of higher highs and higher lows = a trend.
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Many leading stocks exploding to new highs $GOOG $CMG & $SCTY.
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I big part of this reversal was the forcing of short positions to cover.
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The risk off traders that did not want to be long in front of the debt ceiling debates had no choice but to take new long positions when the world did not end.
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I am cautious that we are so far extended from even the 5 day ema, the chart needs to consolidate and let it catch up.
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All year the 70 RSI has signaled a near term top and resistance level. I would be cautious adding longs so close to that level.
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This is some very powerful momentum and at these levels we have no stops being hit, it is all short covering and profit taking. All time highs have no resistance levels they are trying to find them, profit taking will start as targets are hit at levels like $175.00 and $180.00. We will have to wait for the reversal to see where resistance is established.
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We have a formula here where the stock market could go parabolic, it is a rare event but the recipe is there, that is why I will be letting my winners run until they don’t run any more.
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I took long positions on Thursday October 10th and Monday October 14th using $SPY and $UPRO and will not get out of my long positions until I have a reason. Either a reversal day from new highs back into the previous days trading range, a loss of previous days lows not recovered by the end of the day, or a loss of the 5 day ema not recovered. If this trend is to persist we need to hold up at Fridays lows of day and consolidate here.
