Sunday, July 25, 2010

Daily DMI slightly green

Very bullish week. DMI turned positive for the second time and it is possible that we are going to get out of the 1050-1105 trading range for good. Still I want to see SPX above 1105 before thinking about a possible long term leg up from here. Remember, money can be made either long or short so the least biased in any direction the better. Let's see SPX above 1105 and above SMA200 first!

Notice two support areas, around 1065 and 1050 and the resistance line at 1105. We do have an incipient uptrend line. Of course we need more points to build a nice uptrend line but it looks promising so far with too lows at 1022 and 1064 (or better 1072) and two higher highs, 1098 and 1102.

Price moved above both SMA50 (the "orwellian" 1984) and EMA50 (1092), still bellow SMA200 but above EMA200. What's the difference between Simple Moving Average (SMA) and Exponential Moving Average (EMA)? A simple moving average, say SMA50,  adds all the closing day values then divides the sum by 50. There is a potential big problem with computing data in this manner, every day of the last 50 has an equal weight (importance). However, if in the last, say 10 days, market made a big move the move is not going to be that obvious by looking at SMA. This abnormality is corrected by EMA that gives the recent data more weight. The majority of the people, especially older traders, still stick with what they learn first, SMA, that's why you will rarely hear anything about EMAs. Personally, I find EMAs more meaningful, especially when I am looking at moving averages crossing each other.

This is the most bullish momentum since the beginning of the plunge, in April as evidenced by the daily DMI. Most of the time, once DMI changes direction is stays that way for a long period of time. Sometimes, it gives first a warning, moves back to the old direction then gives the real signal. The warning and the actual signal are spaced only a few days apart. The only time this is not true is when market is trading in range (look at November-December 2009 trading range). If this market is going to slip again in the 1050-1105 trading range you will see DMI turning negative one more time but if you see DMI consolidating its bullish position and no turn to red in the next few days we are finally going to go see a decent leg up. DMI is not perfect but for me at least is the best indicator. When the signal is fake it only last a few days. I found this indicator by testing 50+ indicators and oscillators. You will hardly see people even mentioning DMI on their book or their website but everybody who tried it at my suggestion said is has improved their trading by a lot.

This is a turning point, whoever wins the daily DMI wins the the next leg.

"Volume at price" indicator shows that most of the volume happened around 1100 so this is a very important support/resistance level.

Have a happy trading week!


1 comment:

  1. I think you are right,however next leg will (if there'll be as you said) at 1125-1130.Nothing else.
    The rest is long term beaar trend.
    We've to close a huge gap at 1022.We'll see it very soon next times.


Thank you for your feed-back