Monday, August 22, 2011

Flat day but bearish momentum continues

As you already know a bear market becomes official when the GDP switches to negative for two quarters in a row.  Most of the time "technicals" give an early warning and that's exactly what is going on right now. SPX slipped bellow it's long time support moving average, SMA 75 on weekly chart (or SMA 375 on daily) but EMA 20 did not cross EMA 40 yet (again, on weekly chart). If history repeats we are probably going to see another failed attempts to climb above SMA 75 before seeing the market plunging for good.

I don't want to sound more bearish than necessary but bulls seem to be very weak at the moment and they need miracles (QE3 anybody?) to turn this market on their favor.

As you probably noticed SMA 50 crossed SMA 200 last week, giving birth to the so called "death cross". Personally, I do prefer EMAs crossing not SMAs since they are giving far less whip-saws. Last year, on May we had another "death cross" but the market did not turn into a bear market. At the time EMA 20 came very close to EMA 40 on weekly chart but they did not cross. Also SMA 75 was almost touched but offered a very good support.

What bulls may hope here is a small rally where they can exit at a pretty decent level. And I have reasons to believe that such a short lived rally may happen soon. Looking at the weekly DMI it's easy to notice that it has reached a very high value indicating that market is "oversold". VIX is also pretty high, higher than on May 2010 and very close to March 2009 level.

On shorter time frames things look bearish as hell as well (wow, it rhymes!). Remember that a few months ago I switched to two hours time frame since the 60 minutes charts gave me too many whipsaws. However, since the end of July when market started collapsing big time I noticed that data are once again best fitted by the EMA25-EMA50 on 60 minutes chart. The most significant is the fact that EMAs did not gave a false buy signal during the 100 points fake rally towards 1,200 on 60 minutes chart. Aslo SMA 120 offered a good resistance level.

Take care!


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