Wow … I think that is all I have to say. Market was up over 4% today with strong news over a joint international banking effort to help the euro stay in existence. Many traders spent most of the morning skeptical and were shorting this market, but I assume in the last hour they were stopped out as the market jumped another 1% into the close.
We are firmly seated in the same trading range I spoke about over the past month. Right at the middle of the range as a matter of range.
I noted then, that there was a ‘center line’ formed in the market, and sure enough we close right at the upper edge of this line today. A center line occurs when the market tends to have an attraction to a certain area and keep gyrating over and under this area. What you often see in the smaller time frame charts is gaps around this line where price doesn’t want to directly touch the area, but at the same time it is attracted to it formed a perverse relationship with the area. And of course, the further away price is able to run from the center line, the harder it snaps back to it as you see by the last three days of action.
Notice in the attached image of IWM showing 30 minute candles, the green shaded area (the center line). The image shows the entire month of November and how price has tended to bounce above and below this area. Notice how many candles would touch the top (or bottom) and immediately be repelled in the opposite direction. Even today how is spent most of the day sitting immediately below the line, then within the last half hour bounced aggressively through and closed above it.
Price was attracted to the line, but didn’t want to stay on it for any length of time. Center lines are one of those strange oddities in technical analysis and this is a textbook example of the line in action. Eventually the center line will be left behind, but years later price might lock onto the same line again. Well … center lines don’t provide much trading clues … except that for the short term future I would assume this line will be respected.
Where does that leave us in relation to the current situation. Follow through will be important for this rally to continue to prove to the bears that they don’t have a chance. So tomorrow and Friday will be critical for the bulls to hold strong. I would assume we will not make much gain in the coming days, but we need to minimize the downside from here in order to remain bullish for the end of the year.