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Singing The Rally’s Praises (Hallelujah) at Trader’s Narrative

At the close last week, all major indices: Dow Jones Industrial, Standard & Poor’s 500, the Nasdaq and Russell 2000 - all closed at a new high for the year. And today, they again made new highs for the year (but closed lower).

The longevity of this rally is confounding both the bears and the bulls. That is if you can find a bull in this market.

One well respected market technician who has crossed over to the bull camp is Richard Dickson of Lowry Research who wrote today referring to last week’s market action:

There has been no evidence of deteriorating strength in each of the rally days this week, suggesting a continued healthy condition for the rally from the March low…

For more details on Lowry Research and their latest commentary, check out: Lowry Research’s intermediate trend buy signal.

Now that some time has passed I thought it would be opportune to reminisce about a chart that I brought to your attention as a musing of mine almost three months ago. It was a potential scenario that would have echoed the flag formation that we saw in the 2003 bear market low:
pennant formation 2009 SP500 potential

And here is what actually happened:
pennant formation 2009 SP500 actual

This is what I wrote when I featured the original chart:

Obviously what I’m showing is hypothetical - no one knows what is in store for us at the hard right edge of the chart. But I can’t help but project this potential formation onto the chart because of all the other similarities which we’ve seen so far between the two market periods. Although I didn’t foresee this rally coming and actually expect lower prices in the short term, I’m trying to keep an open mind because this rally has angered and confounded everyone. Just take a look at the recent comments here from readers!

Early July brought lower prices (eventually) and another, longer and more beautiful flag formation hugging the long term moving average. For me it wasn’t enough as I was expecting more of a correction. But what struck me most back then, as you can see from the quote above, was the lopsidedness of sentiment from most traders. I could scarcely find anyone who would publicly risk ridicule and criticism to be a bull. To some degree that is still the case today.

Apropos of nothing, if you haven’t listened to Leonard Cohen’s Hallelujah you don’t know what you’re missing.

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