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Home » Blog » 2011 » 09 » Still volatile and dangerous
By Lawrence G. McMillan

The stock market has been swinging back and forth in wide ranges, moving from deeply oversold to deeply overbought and back again with extreme moves.

After appearing to have a positive breakout late last week — above 1,200 on the Standard & Poor’s 500 Index SPX  — the market sold off sharply for three straight days, fueled not only by economic worries but just general fear amongst traders. Buyers finally emerged yesterday afternoon and they have continued into today. In my mind, the complete impetus for this rally was the severe oversold condition that had emerged over the previous three days of heavy selling.

Today’s rally is on track to being a “90% up day” — and there have been plenty of “90% days” recently, in both directions. As subscribers should know by now, a “90% day” in one direction normally spawns an opposite “90% day” in quick order. With that in mind, we don’t want to get too bullish, but it’s certainly possible that the momentum that started yesterday could carry SPX to the highs of the trading channel that is evident on the chart below. That would be 1,240, roughly, so there’s a little more upside room on this move before the top of the channel is reached.. And, while it’s not pertinent right at this moment, a downside violation of that channel would be very bearish — activating targets for SPX 1000...

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