Engulfing Pattern / Follow-Through Day

Qqqq_101905_2 Today’s action meets the generally accepted criteria for a follow-through day, with indexes rising 1%-2%+ on above average and increased volume on any day from the 4th day to the 7th day of a rally attempt.  Today was the 5th day.  The engulfing pattern and close on the high of the day both add to the credibility, although at least some of today’s action can be attributed to short covering and this week’s options expiration.

If the rally is for real it will take the Cubes above the 50-day EMA and the early October high around $40.  A failure there could be a shorting opportunity unless stocks sets up near their recent highs, carve downward sloping handles, and then breakout and hold the gains.  Yes, that’s a lot of ifs, but in general this rally will be considered “alive” as long as it stay above last week’s low.  It will be considered healthy if no major distribution days crop up in the next week or two.  It will be considered strong if we get a series of higher highs and higher lows.  While I’m still more in the “this is a bear market rally” camp, I did cover half of my short positions today.  Cheers!