Today the Dow and the SP500 closed back above the neckline of the HS Top pattern. My first thought was that this was not a factor as the volume was so light, but the market reaction to INTC afterhours will likely change that. Unless there is a substantial change in the futures between now and tomorrow's open, I will be selling my positions in the QID and the TWM for a small overall loss, loss on the QID and flat on the TWM. As I indicated in recent posts, the market was at a critical juncture, and we needed to be ready to let go of the short bias in favor of a renewal of the uptrend. One of the key levels that I cited was a sustained move back above 35.50 in the Qs. If the Qs open higher tomorrow, then that will have occurred. The Dow and the SP500 still need to hurdle the 200dema, however, I suspect that will not be problem.
I will be looking to take initial positions in the USD and UWM. I will wait for a pullback to go long the QLD. If it doesn't happen then so be it.
It also looks like the financials are headed higher, so the UYG may be worth considering.
If the Qs close higher tomorrow, they will trigger a perfect MACD buy signal. The MACD has pulled back below the zero line and will cross above its signal line, while the 50dema of the Qs is sloping upward indicating a positive trend. The MACD sell signal came at 36.06, so the loss on that trade will be small, which is great.
I have repeatedly said since this rally began in March, that the risk was to the upside. While I had strongly believed that we would see another low in this correction, the lack of downside follow-through is pointing to the likelihood that the correction is over. In fact, IBD noted this morning that yesterday counted as another rally follow-through day. I have one criticism for myself and that is that I attempted to short too many individual stocks during this correction, and have realized only limited success, ie a few winners, but mostly losses.
One area that is clearly a problem for all trend following methods is the mechanism for dealing with flat markets and mild corrections, and once this rally is over I intend to spend some time looking back on how it could have been recognized and handled better.