Play Editor's Note: I haven't had the chance to read tonight's wrap so hopefully I'm not contradicting anyone. I've been warning readers for a few days now that I've been worried we were near a market bottom. I was looking for a capitulation event, which we have still not seen. Today's news from the Federal Reserve was a surprise. Does it count as a short-term bottom? Maybe. There were a lot of bullish engulfing candlestick patterns produced today. These are usually one-day bullish reversal signals. However, they normally need to see some confirmation. Essentially, one big up day does not represent a new trend but it definitely puts traders on notice that the trend "could" be changing. I know that a few market pundits believe this new tool by the fed is a potential sea change for the financials. I am not 100% convinced this news will lift us out of the bear market but it could definitely spark a multi-day and maybe a multi-week rally. No one knows yet. Again, I don't want to say anything that conflicts with tonight's wrap but I would watch the 12,500 level or the 50-dma on the DJIA and the 50-dma on the S&P 500. A failed rally under these levels would look like a new entry point for bearish positions. A breakout over these levels would look like a potential change to a new bullish trend. Now the challenge for traders, especially if you have bearish positions is this - do you tighten your stops significantly to cut your losses if the rally continues tomorrow? Or do you keep a wide, aggressive, higher-risk stop loss strategy and try to weather the rebound with the expectation it is just temporary short covering. The answer depends on you! What is your trading strategy, style and risk tolerance.
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