Well the bulls sure had their day today. Like I was expecting the market rallied up hard today. Though volume was not impressive we closed the SPX at 984 (just a few points above Friday's high which technically was setting us up for an inside day pattern today until the last hour). I would have liked to see this inside day pattern complete itself today and possibly see a monster rally heading into tomorrow and mid week. The last hour we were able to break through that 970 level on the futures and that propelled us to melt up into the close.
An inside day is formed when the entire day's price range is within the inside of the previous day's entire price range. If the SPX closed about a point lower than it did then we would have this pattern confirm. This is a fairly rare but very important candlestick chart pattern that usually illustrates that prices are tightening into a narrow range and you should expect a break in the direction with the strongest momentum within the next few days.
With that said, I still think we can continue this rally and go higher the rest of the week but just watch the 15min and 30 min charts of the SPX or ES futures to recognize any signs of weakness or an impending pullback. I usually watch these timeframes to dictate my bullish or bearish bias on an intraday trading basis. Levels on the SPX that should be watched below are the 940s and 960 level as support. Over head resistance sits right around where we closed here at 985 and also up at 1000, 1020-1025, 1040.
The reason this rally feels a bit different to me than the fakeouts we have seen is that finally today we saw credit spreads narrow significantly and that simply means that short term loans for large companies got much cheaper and easier to obtain today and thus its easier for you to borrow money as well. As long as the credit markets start to operate more efficiently over the next few weeks we could see the fear calm down. Talking about fear, today also saw the VIX drop a full 17 pts to read "only" 53 at the close. While off the highs of 80ish last week this current level is still above where it was after Sept 11th so that gives you some perspective.
If we can get some cheaper volatility out there I would be looking to go long options much more than I have been lately so I will let you know what I find out there. Trade safe!