Tuesday, March 6, 2012

Sell signal

It's 10 am and the market has turned very bearish with SPX losing no less than 17 points. The day is not over and we may see buyers jumping in in the afternoon but the thing is that SPX moved bellow SMA 120 on hourly chart. Even if SPX manages to recover some ground the important level is around SMA 120 (1359), if SPX remains bellow this level the correction has started for sure. EMAs crossing while not so obvious right now it may look better by the end of the day.

Another bearish signal is that daily DMI has turned negative.

I'll come with details later.

Take care!

3:42 pm update

Bears are in control. Daily DMI has turned negative but most importantly we have now a nice bearish EMAs crossing on hourly chart. Also important is that market is bellow a declining SMA 120. The correction has started. How long is going to last? I don't know. What I can do is to look at obvious support levels.

After hours update

Let's see what are the potential support levels. First is SMA 50, that is around 1,322 right now. Next potential support level is in the 1,290 area followed by the 3-months uptrend line that resides around 1,265. These are the levels we need to watch.

Sometimes the plunges are going in a straight line, at least the initial phase but some other times I see SPX trying to re-conquer SMA 120 before plunging resumes. So, even if market is going to up in the next few days the important thing is to see if SMA 120 is going to act as resistance or not.

Long term, obviously, was not really affected by these 3 days on the downside. (weekly DMI is still positive). The only thing I see bearish on long term, and I mention this many times, is that SPX did not make a clear higher high (way above April 2011 high) before a decent correction, assuming at this point that the correction just started and we are not going to see a whip-saw.

Last year my EMAs crossing on hourly chart gave me a lot of whip-saws (remember I had to go to 2 hours chart to make some money). However, since the rally started in mid December the system generated a clean 100 point on SPX. Remember this system works only for intermediate time frames and generates good results only when market moves nicely either up or down. If you trade on short or long time frames the signals generated are useless. I just wanted to be clear here. Anyway, let's hope we are going to have a decent correction so we can make money on the downside.

All the best!


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