Thursday, October 30, 2008


We continued the rally strong and what’s amazing is that breadth for the new highs-new lows has significantly improved. We hit 6 new highs and “only” 259 new lows. This was the improvement that I needed to see. It’s a start in the right direction but I can’t say that this is a permanent bottom. The important thing to know about permanent bottoms is that NO ONE knows where it’ll be. That’s a fact. People have been calling permanent bottoms since March. However, a tradable bottom is a different story. I would still wait for the rally to penetrate the confirmation line (nearest support or double bottom neckline) then wait for a healthy pullback to load up on longs. That would be least risky move. The key MA to watch is the 20-day MA.

I see a lot more breakouts and fewer breakouts now and it looks very positive. The majority of breakouts are created by a breakaway gap. These gaps end a trend and start a new trend immediately, all on one day. They are one of the most reliable reversal signals available. I would still wait for a healthy pullback on most of these because if the stock breaks down, then there’s no buffer against major loss. What I don’t want to see are more parabolic spikes because they become unsustainable. The shape of this rally will give you an idea if it will last for days or for weeks.

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