Down, Up, Now What?

Well, my call yesterday for a "higher close" today proved to be somewhat of an understatement. I woke up this morning to charts with more green than a St. Patrick's Day parade. With the major averages all almost 3 to 5% higher on the day, it was one of those days when you could have made money by throwing darts blindfolded.

The bad news is that I missed almost all of it. My personal system involves not trading the opening hour. Of course, today that's where 90% of the action was (more like the opening 5 minutes). But for me, there's just too much risk in trying to pick a direction right at the open to participate intelligently.

Nonetheless, I did put on two trades today. I went long AA at 12.59 and long AMD at 8.92. Even at that, I'm still 30% in cash. Oh, and the good news is that I made back almost all of my losses from last week today alone. In fact, today I had me best day ever. I was up 4.22%.

So the question now becomes, "what next?" Check out this chart of the daily Dow. It's kind of busy but bear with me. I've superimposed the Fibonacci retracement levels going from the highs of April 26 to Friday's lows. (I specifically did not run down to Thursday's lows because I believe they are an aberation, an outlier, if you will).

So what do we see? Today the Dow shot right past the 50% retracement level at 10,585 and even edged past the 0.618 retracement at 10,803 to close just under at 10,785. Notice next that all my indicators are in oversold territory. The RSI color line bar in particular has turned green and it's been pretty good at calling bottoms lately. That said, there's probably some distortion in the indicators due to the anomolous dive from last Thursday.

Notice also the diagonal red line slicing through today's big green candle. That's the lower regression trend channel line. Piercing up through that is a bullish sign.

Reading the news today, I'm hearing a lot of negative sentiment. Take this headline from marketwatch.com: "Commentary: Is Corporate America really worth 10% more than last Thursday?". Well the answer is clearly no. On the other hand, it wasn't worth 10% less last week either. Which makes me even more inclined to discount that monster negative spike as a red herring.

One thing I do watch is the after hours action. And this evening (it's nearly closing time at 8 PM right now), it's been creeping slowly upwards. So there we have it. Bullish after hours, holding the last Fib retracement, big spike up in the ES and on heavy volume just before the close, and still oversold indicators. On balance right now, I'd have to say for tomorrow we're going to hold 'em rather than fold 'em.

I'm not necessarily long term bullish at this point, but at the moment as a swing trader, I don't see any reason to sound the bear raid siren. I don't expect much more in the way of an advance tomorrow, not after the monster run today, but I also don't see another collapse coming. Of course, I'll reevaluate this during my late night session around 1 AM. Stay tuned.

On a sad note: it looks like today was the end for Dr. Brett Steenbarger's wonderful Trader Feed blog. We'll miss you, Dr. S.