Santa Claus really is coming to town! The S&P jumped 3% and the the Dow surged 337 points on Tuesday following six days of weakness. Each gap up over the past two weeks had been met with selling, but this morning it felt different. Bearish sentiment had reached climactic levels, a fact that has forecast big moves over the past few months.
Shorts scrambled to cover this morning as the market roared higher, adding to the upside momentum. If were short, this is the type of day to switch gears quickly, or pay the price. When stocks held higher around 10:30 am ET, that was the final sign that this gap up was going to hold and continue.
There are a lot of igniting bars across the map today. We will try not to get over-zealous, but many of these moves today will lead to significant continuation. IBD will likely put us in a new confirmed rally. It would be healthiest for us to see investors buying stocks at new highs rather than just buying stocks in lower ranges.
The S&P took back the 50-day moving average and the next few sessions will be very interesting to see if we can keep this momentum rolling. We are approximately at the 1238-1242 resistance zone. The next spot is 1249-1254, then the MAJOR zone to watch would be 1260-1266.
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CHARTS
Here is a chart showing the Fibonacci retracement levels. The 61.8% level held during both recent corrections.
Below is the intraday chart showing the wedge on the 5-minute where shorts had a final chance to cover before the damage got worse. When the market held that level and hardly retraced it all, it was a sign we were going higher.
Based on today's candlestick, we should get multiple continuation days. It certainly played out a lot like the start of the week after Thanksgiving. Everybody was ready to jump off a cliff in Europe, suddenly we get some OK data and auctions, and shorts get squeezed for max pain.
*DISCLOSURES: Scott Redler is long SPY, AAPL, GOOG, GS, BAC.
