Don't Trust The Rally!

That seems to be the general consensus out there even though, in my view, it was a decent reversal day.

Like always, the key will be the follow-through (if any) over the next few days. Although I would have liked to see us break this short-term down trend to repair a lot of the recent technical damage, there's always room for that tomorrow and, more importantly, next week.

Remember, the quicker we reclaim both the 10 & 20 day moving averages (S&P 1077 & S&P 1071 respectively) the better off we will be. In previous pullbacks, time spent below these moving averages (yellow boxes below) can be counted on only one hand.

After the rally we've seen and the desire for so many to time the top, I think time is a big issue here. This market doesn't need the excuse to look for reasons to sell but frankly needs to constantly feel that being sidelined or short is wrong which is why it is so important to see a quick recovery and repair of the technical situation. In addition, given the extent of the oversold condition, anything less than a large snap-back rally would be sign either that we're moving into a period of consolidation (i.e. lengthy sideways trade) or worse another leg lower and the start of the "aversion phase" we've talked about before.

For another perspective on the market itself, here's a chart using a basic linear regression channel I'm monitoring:

For this reason, holding yesterday's lows will be very important in the days to come. Many traders will be setting their stops right there and a future violation of it will be severe.

To read more of my after-hours report, please login.