Friday, June 17, 2011

Bears can't get the lucky 7

A flat week as I anticipated on one of the last week blogs with some decent action on both sides but ultimately the price remains at the same level as last week. Now the negative daily DMI has lost some of its strength which is actually good for the bears side keeping in mind that high levels in DMI signal overbought or oversold market.

Most likely market will stay flat next week as well but I do have a slightly bullish bias. No, is not a mistake, I said bullish not bearish bias. Why am I contradicting myself from one sentence to the other? Well... I am getting conflicting signals looking at the daily and the weekly charts.

On daily chart SMA 200 is around 1258, a very important support as usual so there is room for an extra 13 points drop without crossing this very important SMA. Then comes the daily DMI that got rid of the overbought condition as I mentioned above so we can have another drop without DMI making a higher high.

 On the other hand please have a close look at the weekly chart. SPX is almost touching the most important uptrend support line, the one that started in March 2009 at the bottom. This uptrend line resides around 1268, just 3 points bellow today's close. This is one of the most important support level so I expect the market to bounce up from 1268 next week.  The funny thing is that SMA 40 on weekly chart is also around 1268 so one more reason why this level is very important. I am sure you noticed that SMa 200 on daily chart is around 1258 and on weekly chart around 1268. So which one is correct? I don't know, I would go with the daily chart since it gets the value out of 200 bars instead of 40 bars on weekly chart but don't worry too much about this since plus or minus 10 points makes no difference. No only that but remember that I am doing visual estimates so I can easily be off 3-4 points at any time.

In conclusion, keeping in mind that daily and weekly chart don't agree about the direction of the market would be safer to say it will remain flat with a bullish bias due to the fact the uptrend line on weekly chart is a better support level than SMA 200 which is an arbitrary level that it's suppose to work any time and for any stock/index.

Saying that I wish you a nice week-end and all the best!

Next week I am going to look at a even longer time frame, at the pair of EMAs that indicated the beginning and the end of every bull or bear market in the last 20-25 years with a 100% accuracy. I talked about this pair of EMAs before so is not going to be a big surprise for those of you who read his blog almost every day.


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