Wednesday, June 16, 2010

Bulls defend SMA200

Flat today, bears pushed SPX towards SMA200 (1,108) but the index went up immediately. Even with a flat day like this the technicals changed a little bit in the favor of the bulls. We do have now the confirmation on 60 minutes chart (EMA50 crossing EMA100) that the intermediate trend has turned bullish. The crossing is not great (yet) but is good enough for me. We are still too close to SMA200 so I didn't buy too much today.

A move up is not going to be in a straight line, of course. We are going to see some pullbacks that are going to be good entry points for those still in cash but I think the bullish momentum is going to continue for a while. If bears are going to be right and the upcoming rally is only going to reach 1,150-1,160 then we are going to see SPX moving down again, I am not going to make too much money if any but I am not going to lose either. Capital preservation is my number one concern.

The reasons bears say that we are going to stop around 1160 is because they spotted a potential "head and shoulders". The rule number one with these patterns is that you need to let them form first then act. Personally, I think trying to predict big moves, tops and bottoms is a losing game. Some people may say "but you do the same, you invest today because you are predicting the market will move in a certain direction". It seems to be the same but is not. I am not predicting the market I am reacting to market moves. I let market to do whatever it wants to do then I jump on the trend because I know from practice that once a trend starts it will continue in that direction for a while.

The momentum is bullish, no question about this. Think just about the bad news we had today, 10% drop in housing data, news that would normally make the market plunge but it end it up flat. That's exactly what happens when there is a powerful momentum either up or down, the news that are supposed to move the market in the opposite direction are discarded.

 However, bulls should not have an early celebration. SPX is too close to SMA200. Six points in today's market is nothing. We need to see further consolidation above SMA200. SMA200 is raising so every single day is getting a little bit higher. We may see a move bellow SMA200 for a day or two but the market should not go bellow 1,100. That was a fantastic support level just a couple of months ago but the European story was so nasty that SPX went bellow 1,100 and as it always happens when market goes bellow a big support level, that level behaves as resistance on the way back.


1 comment:

  1. What is your take on VIX? It seems to be pulling back below the 50 day MA, but tommorrow is Quad Witching. Will it drop or not?



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