Tuesday, August 31, 2010

Bears don't give up

After bumping into the downtrend line SPX gave away all but two points gained on Friday. Price is once again bellow both EMA25 and EMA50 on 60 minutes chart and one should refrain going long before these EMAs are crossing each other again. Bears are staying now comfortable on 45-50 points gain after shorting the market around 1095-1100.

The most worrying sign for bulls is that EMA20 is almost crossing EMA40 on weekly chart. As I said before these EMAs crossing signaled the beginning and the end of the 2003-2007 bull market. It doesn't necessarily mean a new bear market will start exactly at the same point but it won't probably happen too far away from these values. History doesn't repeat but it rhymes.


Sunday, August 29, 2010

Downtrend line challenged

A pretty bullish day on Friday with SPX going down in the morning just to finish 17 points up. Now we are just a little bit above the downtrend but only if we look at the daily chart. On hourly chart, that also takes into consideration the intra-day values, we are slightly bellow the downtrend line.  Also encouraging for the bulls is that SPX managed to climb above both EMA25 and EMA50 but I would trust the bulls only if I see these EMAs crossing each other. The question to be answered next week is if this is the beginning of a new mini-leg on the upside or a third opportunity to short the market. Monday's action is going to give us a nice tip.

On weekly chart please pay attention to EMA20 almost crossing EMA40. When this happened, 3 years ago, it did signal the beginning of a new bear market. EMAs are touching right now and they are going to cross each other unless market is going up from here! SMA75 (around 1045), a moving average that offered support for the 2003-2007 bull market, was also challenged this week. Also notice that we had 3 weeks in a row on the downside for the first time since the start of the plunge, in April 26.


Friday, August 27, 2010

New lows!

No technical change today, the bearish momentum continues with market having a shot at the downtrend line in the morning followed by another test of the 1045 level by the end of the day.

Tomorrow is going to stays flat until Ben is going to speak. Market players are going to look for clues in Ben's speech about another possible stimulus. Unless market somehow manages to close above 1070 we are going to have a third down week in a row. The last time we had 3 down weeks in a row was in February this year.


Wednesday, August 25, 2010

Bounce up from 1040

Let's not make a big deal about the 3 points up today on SPX but the bounce up from 1040 gives bulls the last bit of hope. Bellow 1040 is going to be really bad since there is no real level of support out there, at least not in the last 3 months.

The downtrend line is around 1068 and is going to climb down to roughly 1065 by the end of tomorrow's trading day. That means SPX can gain another 10 points without affecting the bearish momentum by a bit. There is no positive divergence in either MACD or EW histograms so no early indication that market is going to turn around.

On long term let's keep an eye on EMA100 crossing EMA200 that signaled the beginning of the bear market in 2007. We are not there yet but very close. Intermediate term players should watch EMAs crossing on hourly chart. I hope you went short around 1090-1100 and stay now comfortable on gains.

Let's see how the jobs data are going to look tomorrow. On Friday, I think, the revised GDP data will hit the market. Even if there isn't going to be any surprise expect market to go down a little bit so if we are going to have another up day this week is probably going to be tomorrow.

Have a nice evening!


Tuesday, August 24, 2010

Housing data kill the market

Another bad day for bulls with SPX plunging bellow the weekly "neckline" around 1060. The last line of defense seems to be now 1040-1050. Bellow these values we should expect new lows, bellow 1,000. Once again my major buy/sell signal, EMAs crossing, worked well (1090-1,100 wasn't such a bad level to go short).

As I mentioned before, 2003-2007 bull market was roughly defined by EMA100 crossing EMA200 (or EMA20/EMA40 on weekly charts). Once EMA100 crossed EMA200 from above the market didn't look back and plunged to 667. For SPX and Russell 2000/3000, SMA75 on weekly charts was also the support moving average. Where is SMA75? It stays around 1045 so a move bellow this level is going to send very bearish signals. EMA20 is very close to cross EMA40 (on weekly charts). This is a long term perspective to understand the general direction of the market but for the sake of making profitable transactions you should pay attention to EMAs crossing. Forget about anything else, if you follow these buy/sell signals you are going to make money even on times like this when market trades more or less in range.

Have a nice trading day tomorrow!


Monday, August 23, 2010

Bellow 1070

A late day sell off pushed SPX bellow a critical 1070 support level. This is bad news for bulls especially keeping in mind that tomorrow the housing data are going to hit the news and they are not going to be pretty. What bulls should hope is that the price is already baked into the price but chances are that the market will go down again. At the end of the week we'll have the revised GDP, again old news but with a revision on the downside we are going to see more selling pressure.

Details later tonight


Friday, August 20, 2010

Good news and bad news

1070 tested for the third time and once again SPX resisted. However, the week ended in red. I said last week that my gut feelings are that we may see a bounce from 1070 but we are not going to go above the resistance level around 1100. My "prophecy" was fulfilled (LOL) but I did expect a bounce a little bit higher, in the 80's.

We definitely have a downtrend line that is now around 1085 and is going to be around 1082 on Monday (visual estimates). This mean we may see a bounce up towards the downtrend line then a move further back. We may cross the downtrend line, it all depends on the housing data that are going to be releases next week.

What to expect next? The more a level is tested the more significant is the break out. If 1070 fails we may see a very rapid move on the downside. The good news (for bulls) is that 1040-1060 may also prove to be a decent support level. We do have a pretty solid support/resistance line in the 1060-1065 area on weekly chart and an obvious support/resistance in the 1040-1050 zone. Bellow 1040 is going to be a disaster since there is nothing to prevent bears to push SPX to new lows.

Let's see what the coming week is going to brings and let's adjust our trading strategies accordingly. My main timing strategy, EMA25 crossing EMA50 on hourly chart already gave a "sell" signal around 1100. Acting every time I see these EMAs crossing saved me a lot of pain in the past and made me some money even during this terrible range trading we are witnessing in the last three months. If you want to buy closer to the bottom and sell closer to the top you may look at these EMAs crossing on 30 minutes chart. At the same time you will have more false "buy" or "sell" signals. It all depends on your trading style. For very adventurous traders I try to post every morning the best trading candidates. For players with intermediate risk tolerance I am doing these daily analysis. Conservative players should stay out of this market.

Have a nice trading week!


Thursday, August 19, 2010

1070 level tested again

Both 1070 and 1100 were touched twice this week proving one more time that market players recognize both of them as important support/resistance levels. Here comes the expiration week Friday that tends to end in red but bulls cannot afford to give away more than 5 points on SPX so is going to be tough for them tomorrow.

With today's drop SPX has formed a lower high (ellipse) and we can see an incipient downtrend line. At the same time SPX has formed a higher low (rectangle) this week so we do have conflicting messages, an uptrend line (broken today) and a downtrend line, not unusual when market is trendless. On short/intermediate term market is bearish especially when looking at daily DMI that is red. On long term things don't look too bullish either with SPX bellow SMA200 and weekly DMI in negative territory but 2-3 good days on the upside could bring market closer to SMA200. I miss the days when market was rallying or plunging and didn't change sides so often. We are entering now a third month with market pretty much in the same area and I don't even think about guessing when are we going to pick one side and stick with it.

Hourly chart brings some good information. Price is bellow a declining 5 days SMA but also bellow EMA25 and EMA50 that once again are declining. Remember that my best timing method is to act when EMAs are crossing each other that is still functioning a little bit and managed to earn me some money. Always keep an eye on these guys since they may not making you a lot of money but you will never lose your shirt if act as soon as they are crossing each other.

All the best!


Tuesday, August 17, 2010

Bounce up from 1070 confirmed today

As I anticipated last week, 1070 proved to be a good support level. Yesterday morning market briefly touched 1070 then went up 10 points. The move continued today with another 13 points on the upside. Now I am waiting for the second part of my "prophecy" to be fulfilled, bounce up from 1070 but not above 1100 by the end of the week. Of course is not a prophecy (LOL) just looking at charts and seeing a good support level at 1070 and a good resistance level around 1100 based on "volume at price" indicator.

Daily DMI is switching back and forth worse than in November-December 2009, one more proof that this market is not actually trending but is trading in range frustrating both bulls and bears.On weekly charts DMI turned negative at the beginning of May and never went back in green. Long term player should keep an eye on this indicator as well as on SMA200.

Volume did pick up today giving bulls more hopes that the market is going up again.

On hourly chart it's worth mentioning that we still have a bearish EMA crossing but both EMA25  and EMA50 are now going up.


P.S. If you want to install a widget with my blog on your webpage here is the code (you need to press "get widget" then copy/paste the code):

Monday, August 16, 2010

No Change

The 1070 support was challenged today but bulls resisted the pressure. DMI is deeply in the red zone and EMAs still show a bearish crossing. Volume didn't pick up that gives bulls some hope. 

I think the major trigger for the sell off was the revised GDP, from 2.5% to 1.3%. How can these economists be 50% wrong in their estimate? I do understand 3-5%, within the standard deviation but 50%? Talking about incompetence. Japan's GDP didn't look too good either but market didn't react to this news today. 

 1070 remains the main support area in my opinion. Is it probably going to be tested again at least intra-day and is very important for bulls for this level to resist. Another support level is around 1065, the "neckline" of a potential head and shoulder on weekly charts. We also have a some support on 1040-1050 region so pretty much we can talk about a pretty difuse support between 1040 and 1070.

 Talking about "head and shoulder" I am going to tell you why I don't ignore it but I don't trust this pattern too much. The reason people like this pattern is because its predictive power. If you measure the distance between the high of the middle peak and the neckline you are getting the value by which the market is going to plunge (or rally if is an inverted head and shoulder). The trouble is most of the "head and shoulder" patterns fail and you can never be sure if this time is going to be for real or not. Right now, measuring the distance between the high (1220) and the neckline, 1065 we are getting 155. If we subtract this from 1065 we are getting 910. We may go to 910, who knows but I won't bet my money on this. What it's important for me is if the neckline is going to resist to the bears pressure or not. I treat the neckline as any other support line.

I am going to give you another reason to doubt this head and shoulder or any other one. Look at the chart bellow. Is the same like the one above but this time I am pointing to a potential inverted head and shoulder that by definition is bullish and predicts another 100 points from the neckline pushing SPX back to 1220. So which way are we going? 170 points down or 140 points up from here?

I wish you a good trading week!


P.S. Tiger, if you read this article, please leave me a message here or send me an e-mail. I tried to send you an e-mail today but it came back saying your e-mail address is unknown.

Friday, August 13, 2010

Bearish momentum

It's amazing how easy momentum can change from a positive to a negative one in a matter of days. Only one time daily DMI changed sides so often in a matter of days, in November-December when we trade in the 1080-1120 range. Back then SPX traded in range for 6 weeks now from almost 12 weeks and it doesn't seem to end soon.

Besides daily DMI beeing deeply in red I notice an "engulfing candle" on weekly chart which means that we see another 1-2 weeks in red. Of course is not a guarantee like anything else in the stock market but there is a higher that 50% probability that it will happen.

One thing to cheer up the bears a little bit is that the volume is decreasing signaling that bears don't seem too motivated to push the index further down. It may also be due to the fact SPX is approaching the 1070 level I keep mentioning lately as a decent support level based on "volume at price" indicator. Please note that we've seen volume going down but the trend continuing in the same direction (like at the beginning of the last rally, cyan arrow).

If you ask me the most likely scenario for the next week is a test of 1070 then eventually a weak bounce up  (bellow 1100). This is my personal bias, my gut feelings, not exactly what the charts are saying. Next week is also an option expiration week which usually goes up except the last day, on Friday that tends to end in red. At least that was what happened in the last few months. We shall see!

All the best!


Predictive Power

Challenged by DrStock I am touching another subject today, what indicator or oscillator has a predictive power since as we know they are all lagging, they give us a buy or a sell signal after a top or a bottom has already formed not before. The questions is, there is such an indicator that can tell us in advance in what direction is the marker going to march? I am not aware of any such indicator but DrStock has promised to reveal the secret in the next few days so you better watch his website.

What I know is that you can use o positive or a negative divergence in certain indicators as a tool to anticipate the next move. Most of the time indicators are trending in the same direction as the underlying stock. However, sometimes they move in different directions, they diverge. A negative divergence occurs when the stock is moving up but the indicator is trending down. This is a sign that the stock is going to move down soon.  A positive divergence happens when the stock is moving down but the indicator is trending up. This is a sign that the stock is going to move up soon.

Look as SPX since last August. I pull out two indicators, MACD histogram and Elliott's Wave histogram but you can also use RSI and probably many others, such as OBV (On Balance Volume). As with anything else these indicators are never 100% accurate (not even close), so don't expect them to give you an exact buy or sell signal but combined with other indicators (e.g. DMI) and EMAs crossing they may prove useful. Interestingly enough, combining the power of the two of them (MACD and EW histograms) the performance improves.

N = negative divergence
P = positive divergence

Happy trading!


P.S. A trading book I would recommend is Technical Analysis: The Complete Resource for Financial Market Technicians

Thursday, August 12, 2010

Worst day in 6 weeks

Unfortunately, I was right about the rising wedge. Today we had a violent move down and many technical parameters have been changed. The most important is EMA25 crossing EMA50 on 60 minutes chart that virtually gave a sell signal for the first time since July 9th. DMI turned negative, SMA200 did not hold and even worst 1100 level did not hold either. Once again we slipped into the 1045-1105 trading range.

What should we expect next? Let's see what are the potential support levels. A good support area is around 1070. We do have a support line there but also, looking at "volume at price", I notice that 1070 was the level where most of the volume happen since the top on April 26 (I mentioned this before). The good news for bulls is that at 1070 bears were a little bit more in control than the bulls. Why is this good news for the bulls? At any given moment a number of bulls or bears are getting trapped. Imagine going short at 1070 then see the market going to 1129. You are losing money and when this happen the last thing in your mind is to make a profit. What you want is to get even. When a significant number of people get trapped at the same level that level is going to become support or  resistance. Conventionally, if the price is coming down we say "X" level will probably act as support, if price is going up we are saying that "X" level is going to act as resistance. "Volume at price" indicator adds a new dimension, it can tell us if a certain level is more likely to act as support rather than resistance (or more as a resistance than a support). In our case since bears were a little bit more in control at 1070 we should expect this level to act more as a support than a resistance. In other words if price is coming down (like right now) we should expect 1070 to act as support but if the price is bellow 1070 and rising we should not expect 1070 to put too much resistance. Exactly the opposite is 1100 level. There, bulls were more in control than bears, most of the volume was due to bulls going long. Consequently, 1100 is more a resistance than a support area and I am sure you already noticed that SPX stumbled every time rose towards 1100 but on the way down it didn't act as a support.

What other levels of support we can talk about. 1040-1050 is the most obvious one,  in that area most of the volume was due to the the bears.

Looking at weekly chart I want to remind you that the 2003-2007 bull market  found support at SMA75. When this level was broken market switched to the bear market. Right now EMA75 (75 weeks) is around 1040, very close! In terms of EMAs crossing the bull market started in 2003 when EMA20 crossed EMA40 from bellow and ended when EMA20 crossed EMA40 from above (again, this is on weekly chart, on daily chart this corresponds to EMA100 crossing EMA200).  EMAs did not cross yet so we should not prematurely celebrate the death of the bull market that began in 2009. This was on 2003-2007, it doesn't mean is going to happen exactly at this values but we need a starting point. Please note that while EMA20 crossing EMA40 gave the correct beginning and the end of the bull market on all indexes, Dow and Nasdaq did not found support at SMA75. This is the main reason I trust more two EMAs crossing than a single moving average. Russel 3000 also found support at SMA75.

All the best!


P.S. Thanks again to those of you clicked on the ads. 

Tuesday, August 10, 2010

Off lows but on short term...

... the bullish momentum is in trouble. DMI is still green and the market closed above SMA200 but not before going bellow 1115 in the morning. Feds came to a rescue with their "no change" policy and SPX gained 8 points after that. We are now slightly bellow the uptrend line or, if you prefer, bellow the lower edge of the "rising wedge". SPX can afford to lose another 5-7 points without making DMI turn red but no more than that.

I am surprised people didn't take the opportunity to take more profit of the table today but this may happen tomorrow (as I am writing this article futures are 7.5 points down). We had 6 trading days in a row where market pretty much didn't move despite some significant intra-day moves. This could be interpreted as both bullish or bearish depending on everyone's bias, bearish because bulls seem to be running out of steam, bullish because market still holds despite being overbought on short term and despite some bad economic news. As an option player I did buy some "straddles" (long and short at the same time) since the volatility is shrinking and the options are getting cheaper. Any big move either up or down is going to bring me a profit. For the stock traders I would say take some profit of the table, better lock in some gains. Don't go short yet, it's way too early but if you see DMI turning negative or even worst SPX moving bellow 1100 you can go short.

Long term is slightly bullish keeping in mind that DMI is a little bit green and price is a bit above SMA200. Yet until weekly DMI turns green again bulls should be a little bit cautions.


P.S. Carter Worth, a technical analyst says that market is pretty much neutral and neither bulls nor bears are in control. 

Monday, August 9, 2010

Bullish momentum continues...

...not very convincing but the daily DMI is still green. The trouble is that we are witnessing now the formation of a possible "rising wedge", a pattern that is mostly bearish. As you can see bellow we do have an uptrend line around 1120 (which is bullish, of course) also notice that the market is not only making higher lows but also higher highs. Add this to the fact that SPX is above the most recent major high (1120, June's peak), above rising SMA50 and SMA200, daily DMI is positive and we have an almost perfect bullish picture. And indeed it is bullish, no question about that. However, on short term there is a chance the market may move down. The most recent uptrend is formed by three major waves but the amplitude of these waves is decreasing. This gives birth to a "rising wedge" pattern that most of the time is bearish. We don't need to be paranoid here but if we see SPX sharply moving bellow the uptrend line that is going to make room for a bigger drop. SPX can also move quietly out of the wedge, it can move sideways. The third scenario is going to be a break above the upper edge of the wedge that is now around 1140. Remember that both edges are moving up every day but for now we should expect a bounce between these two edges one at 1120 and the other at 1140.

Tomorrow is going to be the perfect opportunity to move out of the rising wedge. Let's see if the market is going to be surprised or not by Feds next move. From what I hear Wall Street is expecting Feds to add more stimulus. If there is not going to be any surprise we are going to remain inside the wedge.

 The hourly chart doesn't bring anything new to the information provided by the daily chart. We still didn't manage to climb above 1031 June 21st intra-day level but as I said before I don't consider this level very important. Besides the support around the uptrend line (1120) also keep in mind two other major support levels, SMA200 (1115) and 1100-1105 area. At this point we should be cautiously bullish.


Sunday, August 8, 2010

A bullish week

Hi guys, I am back from my little vacation! How are you? I hope you managed to make some money last week.

As I said just before I left bulls were supposed to push indexes higher this past week to prevent the daily DMI going red again and that's exactly what it did happen. As you noticed from the daily chart, DMI gave a warning to the bears (1), then the actual "buy" signal came (2) and finally the DMI was tested (3). Now DMI is positive but it looks like it doesn't want to make a decisive move into the green zone suggesting that bulls are not that confident at this point. Still the ball is in their court especially since the market managed to climb above SMA200 as well, a level very well watched even by people who don't trust technical analysis. I mentioned a few times that I rely mostly on EMAs  since EMAs put more weight on the recent data but I am trying to keep you alert when SPX crosses either SMA50 or SMA200 two levels many people and many computer are programed to take action as soon as they are crossed, therefore very important resistance/support areas. Both SMA50 and EMA50 are rising, while SMA100, EMA100 and SMA200 are barely pointing up. Another bullish sign is that SPX managed to stay above the uptrend line.

Bulls should be aware that the last two earning seasons started in their favor just to see bears taking control at the end. It doesn't mean is going to happen again but they should keep their guard up and prepare to take action if the momentum turns in bears favor. The best clue, again, is going to come from daily DMI. Talking about DMI, long term players should keep an eye on DMI on weekly charts that is still negative but is getting more and more bullish. MACD on weekly charts is about to give a "buy" signal if market is going to go up this week.

Looking at hourly charts it's easy to notice the resistance level around 1130. This is not an important level in my opinion since it was only an intra-day value that was touched on the day SPX moved strongly up in the morning just to finish in red by the end of the day. This reversal day set the tone for a huge plunge from 1130 to 1020. More important are the closing values and SPX is just a little bit above the high seen on June 21st, around 1119.

 Since we are here on the subject, you probably noticed that I do have set my chart style to "line" (or "close") instead of "candlesticks" like the majority of the people. The reason I am doing this is for simplicity, the chart looks least "busy" plus I can easily draw my uptrend or downtrend lines. Candlesticks have the advantage of showing the intra-day data, plus there are some nice patterns you should be aware of. The most useful pattern in my opinion is the "engulfing candle". It can be either bullish or bearish. A bullish engulfing candle appears when a red (down day) candle is followed by a big green candle whose "body" is going both bellow and above (it engulfs) the body of the previous day candle. Look at a bearish engulfing candle on SPX and two bullish engulfing lines on X.


P.S. Thank you very much to all of you who clicked on the ads displayed on this page. Please continue to click to keep me motivated to continue these free analysis on daily basis (clicking 3-5 ads every couple of weeks should be enough if everybody does it)