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Follow through day has bears on the run

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The markets are finding a broad based rally with the major indexes showing gains of 3 to 4% and all sectors with the exception of the Utility Index (UTY.X) 223 -0.18% showing gains.

The major indexes have the Dow Industrials (INDU) 7,778 +3.25%, S&P 500 Index (SPX.X) 830 +3.25%, S&P 100 Index (OEX.X) 418 +3.12%, NASDAQ Composite (COMPX) 1,201 +3.25%, NASDAQ-100 Index (NDX.X) 882 +3.84% all moving higher in unison.

From our Index wraps and Swing Trade Wraps, we're seeing the indexes break above their downward trends that have been in place since mid-September. Perhaps the closest watched technical levels currently are the broader NASDAQ Composite (COMPX) at the psychological 1,200 level with also has technical merits.

NASDAQ Composite Chart - Daily Interval

The "short-covering" rally continues in the NASDAQ and its looking like the ability of this index to hold some recent lows while the Dow Industrials, SPX and OEX were breaking daily lows, was indeed some shorts covering positions on weakness. Yesterday's gains only lends to further short-covering today.

For a bear that may have been complacent, it now becomes a more dire situations as a more powerful move than perhaps expected unfolds.

However, for a bull, legging into positions gradually or waiting patiently for a pullback to better control downside risk becomes the plan.

According to the StockTrader's Almanac, Monday's trading has been bullish 9 out of the last 11 Monday's before option expiration. I can envision similar technicals to those pointed to on the chart above where we see a slight gain on Monday, and then perhaps a pullback into the NASDAQ Composite 1,157 level mid- week. I'd expect patient bears that had taken some gains off the table and perhaps not willing to "chase" a move higher as they've raised some cash, to perhaps be implementing some "final" shorts near current levels and then looking for some type of NASDAQ Comp pullback near 1,157 to close out their trades.

That would then create some good support for new bullish entries. Again, a bull can be patient and look for pullbacks, but bears need to assess their accounts and make sure they aren't OVERLEVERAGED and let things get away from them.

Jeff Bailey

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