Saturday, July 17, 2010

Bellow the downtrend line

Once again SPX moved down bellow the downtrend line. As I mentioned the previous days I expected a pullback towards the downtrend line since the move on the upside was too fast and market was overbought on short term. Unfortunately for the bulls, the downtrend line did not hold. The downtrend line was around 1072 in the morning but it climbed down around 1069 by the end of the day so SPX is about 4 points bellow this level (these are visual estimates so consider them plus or minus 3-4 points). I am not going to make a big deal about this especially keeping in mind it was the Friday expiration week  and things are always getting weird, people are forced to close their option positions or at least to roll them over but if market close down again on Monday by more than 10 points is not going to be nice for the bulls.

Bears must be happy now that SPX slipped bellow the downtrend line and DMI on 60 minutes chart turned negative. This particularly DMI proved to be a very accurate timing indicator lately. Usually it gives some false buy and sell signal and the only DMIs I am regularly using are those on daily and weekly time frames but in the absence of the EMAs crossing that whip-saw me for 3 times, DMI on 60 minutes proved to be very accurate. Fast players should also know that EMA50 crossed EMA100 on 15 minute chart giving a "sell" signal, an information that is generally an early warning about the beginning of a new trend or the end of another. Usually I buy when the same moving averages crosses on 30 minutes chart.

I made a killing from 1220 to 1080 ( I must admit I played options). However, since the beginning of June until now  I barely managed to get even. Faster player probably rode all these spikes  but not me.
I keep mentioning to pay attention on EMS50 crossing EMA100 on 30 minutes chart, with crossing on the 15 minutes charts as an warning and those on 60 minutes as the confirmation of the trend. From now on I am using only 60 minutes charts and switched the EMAs to EMA25 and EMA50 (which is equivalent to EMA50/100 on 30 minutes charts) so you can watch both the hourly DMI and EMAs crossing on the same chart.

Please revise the 3 scenarios I wrote yesterday. We are still slightly at number one assuming SPX climbs above downtrend line on Monday. If not 1045-1050 should provide a nice support and a bounce from there will give bulls plenty of ammunition to climb above the downtrend line once again. The downtrend line and the horizontal support line around 1050 will meet soon and usually, when this event happens market violently moves in one direction or the other.


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