The indices experienced a dramatic and technically significant end of week rally on Friday that saw the Indices surge sharply through 4 week declining channel tops resistance lines and took out a couple of lateral price resistance levels as well. The surge was accompanied by a decent thrust in advance/ declines and up/down volume ratios. The rally was sharp and persistent, with only a late profit taking pullback preventing it from closing at the session highs.

The Nasdaq 100 Generals, including AAPL, AMZN, GOOG, MSFT, META, NVDX & TSLA , as well as other larger cap tech stocks led the way. The Nasdaq 100 index surged 425 points off the early pullback low as the S&P 500 jumped 105 off its early session low.

Although the McClellan Oscillator didn’t reach a very extreme oversold level ( -200-250 zone or more), it did manage to tag an oversold -157.50 reading by Wednesday. Even though the SPX index slipped a bit lower after that the oscillator didn’t set new lows. That set up a positive divergence that contributed fuel for a snapback rally.

The VIX volatility index (which judges fear and greed) surged to near 21 by Wednesday ,the highest reading since May 4th.

At the same time the percentage of stocks above their 40 day moving average reached a 6 1/2 month low of just 12.6% from a reading near 77% just 3 months before.

The combination of the oversold McClellan Oscillator reading, the spike in the VIX Volatility index and the low reading in the % of stocks abvove their 40 day moving averages was the set up for the strong rally .

Its long been the case that Bear phases can and often do get short covering rallies ahead of the weekend and we must remain vigilant and not over committed at this juncture until the path is clearer.

Looking ahead to next week. Obviously, a strong follow through would be necessary to confirm that at least a short term low had been made , Overhead resistance now lies just ahead at SPX 4333-38 ,4375-4400 and NDX 15110-15 and 15290-300. For starters those zones will need to be taken out to confirm. Certainly an important mid October week lies just ahead!

“Trade what you see, not what you think.”

BY Harry Boxer

Veteran Stock Trader, Analyst, Coach & Author

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