Good Morning, Traders. Whoa! Apparently there is nothing more influential to the markets than when Uncle Ben decides to hint that the raising rates cycle may be coming to an end. That's what happened yesterday as Benjamin Bernanke's remarks were construed as "dovish" vs "hawkish" and the Dow ripped ahead by its biggest one-day gain this year, galloping forwards by 212.19. The S&P and Nasdaq reacted in kind with advances of 22.95 and 37.49 respectively. Although we've seen these "Fed Rallies" before and their usual M.O. is to slowly deflate over the next few trading days after the announcement, some of the market internals in yesterday's session were among the most bullish we have seen in some time. Breadth on the NYSE closed at twelve to one positive although on the Nasdaq it was a far less impressive with a ratio of just over three to one positive. Advancers led decliners on the big board by over 2400 (!) and just over 1600 on the Nasdaq. One area of concern which would define the advance as more short covering than new buying was the fact that my Core Sector List was led by homebuilders and mining stocks rather than semis and financials. On a day when both housing starts and building permits came in lower than prior period and below consensus, was the strength in homebuilders and their broken down charts new buyers or shorts covering? I think the latter.

Our job now is simply wait and see. As we saw the last time Bernanke was in the spotlight, the market moved up a huge piece and then promptly went much lower the following week. The annotated chart below simply shows where the rally took us and what lies ahead. No predictions, no prognostications, just the technicals, maam. If we break that diagonal blue line to the upside, AND are able to hold it for a few days without passing back down below it, then our near-term bias might change and we would start to feel more comfortable about long breakouts on charts that have built some nice consolidations at highs of 52-week ranges. Until then, sit tight.

Focus List

UTSI - UT Starcom
Industry - Telecommunications (wireless)
Side - Long
Trigger - 8.10
Stop - 7.60 or low of breakout day
Target - 9.12
Timeframe - multiweek

Notes

• Check weeklies (not shown) to see the reversal of trend happening in this stock and also the pivot from late 2005 highs that is the target
• Stop listed is under low of yesterday's bar but can be tighter under low of breakout bar if breakout is a big bodied candle with good volume

CMG - Chipotle Mexican Grill, Inc.
Industry - Restaurants
Side - Short
Trigger - 53.00
Stop - 55.50
Target - 48.30-
Timeframe - 1 week to multiweek

Notes

• Target listed is to next pivot on weeklies (not shown) but chart will show that next major support below there is not until $40
• Recent IPO that could be deflating here
• Stock closed very weak near its open on a Dow +200 point day which indicates relative weakness
• Inverted hammer on dailies defines parameters for entry and stop

Peter Reznicek is the Chief Equity Strategist and a principal of the Prana Fund, a domestic hedge fund, and ShadowTrader, a subsidiary of thinkorswim which provides coaching and education to its clients on both intraday and swing trading of equities. For a free trial to the full version of The Big Picture or to learn about ShadowTrader's other services, visit shadowtrader.net or send an email to preznicek@shadowtrader.net.