How To Spot A Relief Rally In Stocks And Stock Markets

After stocks sell off and make a new low, some buyers come back in and provide support for a few days, sometimes a few weeks. That’s a relief rally and it’s usually identifiable by its failure to reassert price back above downtrend lines. A confirming factor (sometimes) is the diminishing of volume as the upward move unfolds.

Follow through is lacking as the price seems to re-gain lost ground and a sense of enthusiasm returns, temporarily. “Bottom pickers” show up on Twitter and other social media cites, proclaiming the ability to pick the spot where the stock will begin going up again.

Here is how price charts look when relief rallies seem about to gain traction:

The ultimate “consumer discretionary” equity, Carnival Corp (NYSE: CCL), the cruise lines operation, is showing relief rally symptoms. It’s coming off a a huge selling volume low down below $7 and bottom pickers either a) thinking about piling in or b) piling in. The relief rally is likely to find resistance (aka “selling”) at the declining 50-day moving average, $9.71 and than at $11 where the sellers have taken over from buyers in June, in July, in August and in mid-September.

The interest rate-sensitive big bank, JP Morgan Chase & Co (NYSE: JPM) just made a lower low — lower than the mid-July low. The bottom picking is beginning as a couple of days of semi-ferocious buying have unfolded. The stock is likely to run into sellers at $155.05, the declining 50-day moving average and then at the previous resistance levels of 122 and 124. Take a look at that 200-day moving average (the red line) and how it’s been steadily declining since the beginning of March.

The late September low of below 40 is a lower price for Cisco Systems
CSCO
Inc (NASDAQNDAQ
: CSCO) than the previous dips down established in mid-May and in early July. To a price chart analyst, such a pattern is not bullish as the trend downward is confirmed. That doesn’t stop those who want to pick bottoms and come away as stock trading heroes. The 2-days of October buying have taken Cisco back up to 41.82. Look for relief rally blockages at the declining 50-day moving average, $44.20 and at the previous resistance of just above $46.

AT&T (NYSE: T) easily took out the March lows in the late September sell-off. The previous 2022 low was $16.75 and the new low is $15.25. Thus, a downtrend is confirmed for the big Dow Jones Industrials component. At the beginning of October, a relief rally is underway, not that unexpected given the amount of selling that took place in the month that just ended. Note the a previous resistance level — $17.40 — coincides with the level of the declining 50-day moving average. Buyers and sellers are likely to have it out at that point if it’s reached.

There are many more examples of potential relief rallies now going on with many well-known, name brand stocks. Institutional investors (and traders) will be looking to the CPI and PPI numbers to be released later this month to gauge how much further the Fed might go with interest rate hikes. That will be telling for stocks now being purchased.

Not investment advice. For educational purposes only.