Tuesday, June 8, 2010

Bears can't make it three times in a row

After touching the May 26 intra-day low at 1,042 SPX managed to climb 20 points to 1062. I am not getting too excited about this "magic" recovery since the market remains extremely bearish on all time frames. The good news for bulls is that 1,045, a level where a notice a good volume in the last four months, did hold. Also it's good to see SPX above the February low at 1055. The bad news is that SMA240 (5 days) continue to decline and is now around 1095 meaning that today's 10 points gain did not change anything significantly in the favor of the bulls (the major downtrend line is around the same level). A small rebound beyond today's gain it's possible in very short time frames. However, on intermediate and long term time frames things don't look good at all. As long as SPX stays bellow SMA200 (around 1,105) bulls should be extremely careful. EMA50 is about to cross EMA100 on daily charts for the first time since the beginning of the rally (circle on daily chart). This crossing doesn't say anything about what is going to happen tomorrow or in the next 30 days but on long term time frame this is very bearish.

So, what levels do we need to watch right now? I think we should keep an eye on 1055 (February low) and 1045 (good volume since the start of February-April rally) as possible levels of support. On the upside I think 1075, the former uptrend line (cyan arrow on daily chart) is the first resistance level but not that important. The most important is 1,100 which roughly corresponds to SMA200, and the May27/June3 highs.

At this point there are very good resistance levels and pretty weak support levels. While SPX may trade in this range for longer than we may think we need to be rather bearish than bullish long term.

Take care out there, cash is the best option for the small investor, longs and shorts need to be played very carefully, only a few shares and ready to sell if things turn out exactly the opposite you bet.

A friend of mine from Market Watch asked my opinion about SOX, the Philadelphia semiconductor index. Well, it looks bad but not as bad as the rest of the market. It looks more like Nasdaq (QQQQ) than DOW or S&P500. Only yesterday it did slip a little bit bellow SMA200 so not all hope is gone but I am sure it will go further down if the rest of the market is going to go down. Very few individual stocks or ETFs resist a market plunge. The problem with stocks and ETFs that didn't go down as much as S&P500 is that they trapped some bulls (including me with WLT) when the market rebounded from 1045 to 1100. On 30 minutes chart you can better see what I am talking about. SOX gave a buy signal when EMA50 crossed EMA100 (cyan arrow) then a sell signal one week later (red arrow).

Just to remind people about my timing system, I am getting alert when EMA50 does cross EMA100 on 15 minutes chart, I buy when the cross happens on 30 minutes chart, then I am looking for the confirmation on 60 minutes chart. The confirmation never happened so no wonder I've got the sell signal immediately afterward. This is my timing method that helped me ride every single major rally and every single major plunge. Other people uses different methods but I can tell you for sure I am not the only trader got caught on the wrong foot last week. Look at one of the most popular indicator, MACD that also gave a false buy signal.


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  1. Fine analysis babaro. I am keeping a close eye on the 1040 level to see if it holds.

    What are your thoughts on Semiconductors ($SOX)?


  2. OK, MrMoney, I added some comments and two charts on SOX


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