How To Spot A Relief Rally In Stocks And Stock Markets

After stocks sell off and make a new low, some buyers come back and provide support for a few days, sometimes a few weeks. This is a recovery rally, usually recognizable by failure to sustain the price back above the downtrend lines. A confirming factor is (sometimes) the decrease in volume as the upward move unfolds.

Staying power is lacking as the price appears to be regaining lost ground and a sense of excitement makes a temporary return. “Bottom pickers” are popping up on Twitter and other social media quotes, heralding the ability to pick the point at which the stock begins to rally again.

Here’s what price charts look like when recovery rallies appear to be gaining momentum:

The Ultimate “Consumer Discretionary” Equity, carnival corp (NYSE: CCL), the cruise line operations, is showing signs of a relief rally. It’s coming from huge selling volume deep below $7 and bottom pickers either a) thinking about piling up, or b) piling up. $9.71 and then $11 where sellers took over buyers in June, July, August and mid-September.

The interest-sensitive big bank, JP Morgan Chase & Co (NYSE:JPM) has just made a lower low – lower than the mid-July low. Floor selection begins after a few days of semi-wild buying unfolded. The stock is likely to face sellers at $155.05, the falling 50-day moving average and then at the previous resistance levels of 122 and 124. Take a look at this 200-day moving average (the red line) and how stable it has been since early March in decline.

The late September low of below 40 is a lower price for Cisco systems
CSCO
inc (NASDAQNDAQ
: CSCO) than the previous drops recorded in mid-May and early July. For a chart analyst, such a pattern is not bullish as the downtrend is confirmed. That doesn’t stop those who want to pick bottoms and get away as stock-trading heroes. Two-day buying in October has pushed Cisco back up to 41.82. Watch for any recovery rally blocks at the declining 50-day moving average of $44.20 and the previous resistance just above $46.

AT&T (NYSE:T) slightly cleared March lows in the late September sell-off. The previous low of 2022 was $16.75 and the new low was $15.25. This confirms a downtrend for the major component Dow Jones Industrials. There is a recovery rally underway in early October that is not so unexpected given the amount of selling that has taken place in the month just ended. Note that a previous resistance level – $17.40 – coincides with the level of the bearish 50-day moving average. Buyers and sellers will likely know at this point when it’s reached.

There are many other examples of potential recovery rallies currently taking place in many well-known branded stocks. Institutional investors (and traders) will be eyeing the CPI and PPI numbers to be released later this month to gauge just how far the Fed might go with rate hikes. That will be meaningful for stocks bought now.

No investment advice. For educational purposes only.