Stocks Rally On October 3, But Don’t Expect It To Last

View of a mechanical bull machine with nobody

Stocks managed to rally, on Monday, by 2.6% on the S&P 500. It mainly looked to me like short-covering once again. We seem to see these types of moves pretty often, and maybe it turns into something, but I doubt it. I still think we are at the start of wave five down, and today’s rally completed a broadening wedge. The E leg stopped rising basically where it had to.

Additionally, the S&P 500 could only fill half of the higher gap. But there are more telling signs on other market indicators that may be better to look at.

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Nasdaq (QQQ)

If you look at the QQQ, we can see that the rally today took us right back to the lower end of the bear flag pattern, where it stopped.

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Small Caps (IWM)

Meanwhile, the IWM rose today by 2.65% and only managed to fill the gap at $169.90 and stopped.

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The point is that at least these three major indexes and ETFs stopped rising and reversed where they had to to keep the rally from turning into something more. Does that mean we can’t rally higher again tomorrow? Of course, we could rally tomorrow, but if you are bullish, you not only want to see a rally, you want to see the SPX, QQQ, and IWM all gap higher and above those resistance levels. If not, then I think that may be all for now, with another leg down to come.

Tesla (TSLA)

Tesla was down 8% today after reporting delivery numbers that fell short of estimates. It certainly isn’t unusual for Tesla to miss deliveries. But the market didn’t like it and closed below support at $246. At least at this point, $246 will probably become resistance, and the new support level is now at $225.

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Amazon (AMZN)

Amazon doesn’t look much different from the QQQ, with the stock hitting up against resistance at $116.40 and the lower trend line of the bear flag pattern. So could it go higher, sure, but again, you want to see it gap over those resistance levels. If not, then this rally is probably over.

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Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information ...

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