Tuesday, November 23, 2010

Bears are back

For the third time in a row we had a very bearish morning  but unlike Friday and Monday bulls were not able to push market higher in the afternoon. This must be a relief for bears who saw the bearish momentum seriously challenged in the last three trading days. Once again SPX is bellow both EMAs that are now pointing down as they should do during a downtrend. SMA 120 also started to climb down but it may need a few more bearish days to be obvious on the chart. Price tends to stay very close to EMAs both on uptrend and in a downtrend. Right now has moved 7 points bellow EMA25 so there is a little bit of room to move on the upside without disturbing the downtrend. What I want to see is price touching EMAs but at a safe distance from SMA120.

On daily chart the most noticeable event is DMI turning slightly negative today. DMI remains bullish on weekly chart so this is a bearish leg inside a larger bullish one. There are a few good levels of support, first is the November 17 low around 1177, not a very important one but we need to see market making a lower low bellow 1177 for this leg to continue to move down. Since November 5th SPX made two lower highs and two lower lows. Another lower low on daily chart is going to be very good for bears. Other levels of support are represented by 1172 (SMA50/EMA50) and the best of all 1132 (SMA200). The major resistance level remains SMA 120 on hourly chart.

As I mentioned earlier today the dollar has generated a weak buy signal. It needs to move a few good days on the upside for the crossing to become obvious. Please pay attention that I optimized these EMAs on the daily chart. If dollar is going to start a decent multi-month uptrend this may help bears since a strong dollar in general is bearish for stocks but once again I must warn you that the correlation between the strength of the dollar and the stock market is not perfect. Much better correlation is between commodities and the dollar. Even there we can find a strange behaving day like today when dollar went up but gold went up as well. However, other commodities like oil, silver and platinum went down today.

All the best!


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