Today's technical outlook: More signals point to rally

Posted Feb 6th 2009 9:30AM by Sam Collins
Filed under: Technical Analysis, S and P 500, DJIA

The evidence is growing that a major rally is about to get underway and the possibility that a major bottom has been made is increasing.

The bases for the Dow at 7,900 to 8,000 and S&P 500 at 800 to 820 have not only held fast, but new buy signals from a variety of indicators are virtually telegraphing that the market is better situated for a rally than at any time since November.

And there are some interesting similarities to the bear market bottom of 2002-2003: The sideways pattern that began in early October is now more than four months old. And an argument could be made that the consolidation that marked the bottom of the last bear market was extended to seven months only by the Sept. 11 catastrophe, which hit smack in the middle of the consolidation.

The 2002-2003 bottom has other similar technical characteristics to the current consolidation. Both exhibit very high public bearish readings, both have contracting volume at the final low, both have an intraday low and closing low at approximately the same S&P 500 level.

And both set the closing low one day before the intraday final reversal low (the 2002 bottom was made with a closing low on Oct. 9 at S&P 776.76 and the intraday low on Oct. 10 at 768.63. The 2008 bottom was made with a closing low on Nov. 20 at 752.44 and the intraday low on Nov. 21 at 741.02).

Is this conclusive?

No, but the CBOE Volatility Index (VIX) pattern that I mentioned earlier this week adds another similarity to the 2002-2003 bottom. All together, it adds up to the strong possibility of at least a major bear-market rally -- and perhaps even the final bear-market low.

One stock that appears to be poised to rally is Synopsys (NASDAQ: SNPS), my trade of the day.

Sam Collins is a contributor to OptionsZone.com.

Tags: cboevolatilityindex, sam collins, SamCollins, synopsys, volatility