Wednesday, July 14, 2010

Even God rested on the 7th day

SPX couldn't make it for 7 straight up days in a row (no coffee today for me?) but Nasdaq and Dow did. The battle for 1105 was postpone for at least another day. From 1096 (SMA50) to 1113 (SMA200) there is a whole resistance area that could slow down bulls a little bit on short time frame. The long term momentum is good (evidenced by the slightly positive daily DMI) so I am pretty sure we are going to go up from here. A retracement towards the downtrend line, today around 1075, is possible but overall chances are we are going up.

On shorter time frames I noticed DMI turning negative on 30 minutes chart, just to recover by the end of the day. This is not surprising keeping in mind that SPX advanced very rapidly from 1022 to 1095 and not as significant as an eventual negative DMI on 60 minutes chart that was a pretty good indicator of a trend change in the intermediate time frames in the last two months.

A quick look at the 3 possible intermediate/long term scenarios here (always need to play the devil's advocate).

The bullish scenario (+++)
-eventually SPX retreat towards the downtrend line but it moves up again from there.
-SPX goes above 1105, then 1113 (SMA200)
-daily DMI consolidates it's position
-long term uptrend resumes
-need to watch for EMA50 crossing above EMA100 on daily chart and DMI  on weekly chart turning positive to confirm the long term trend change.

The sideways scenario (++)
-SPX is back to 1067-1105 trading range
-SPX goes back to the downtrend line but the downtrend line does not hold
-slowly moves down towards 1045-1050 but not bellow. More pushes towards the upper edge of the trading range (11105)
-locked in the 1045-11105 area

The bearish scenario (+)
-SPX plunges bellow the downtrend line, support at 1045, the bellow 1022
-God help bulls at this point since it's hard to say where is going to stop.
-probably in the 900-930 area according to "head and shoulder" pattern, the same area where we can find the 2007-2009 recession downtrend line
-a hint that this scenario may happen is going to be a plunge bellow 1045-1050 support area
-even  a drop bellow the uptrend line is going to be an early warning. There is absolutely no reason for SPX to slip bellow the downtrend line, now around 1075 and going further down every day if this uptrend momentum is for real


  1. S&P can draw just a doble high around 1105-1113...nothing else..the rest is an abyss to 1022 and then 950.I wouldn't be so sure of a double could be also a spike..strong hands could surprise all bullish people.

  2. Are you sure about your bearish scenario? I am not sure about "my" bullish scenario but it doesn't matter since I am going to "kill" my "longs" as soon as I see one of my indicators turning negative. I see many people trying to guess the tops and the bottoms based what they believe are "fundamental" data. This is a losing game, I played this game when I started trading and I was a very successful... loser.

    For every PhD in economics that says the market is going up you'll find another one who says is going down. At any given time! They are basing their conclusions on fundamental data. So what is the inexperienced trader choice in this situation? Which one is he going to believe? If he is short he is going to believe the bearish guru, if he is long he is going to believe the bullish guru. This will bring the little guy the comfort of knowing that there is a guru out there on his side but he will still lose money at least half of the time, especially because the less experienced traders are the more likely they are either perma-bulls or perma-bears.

    What I am trying to do here is exactly the opposite. Forget about fundamentals, forget about what these guru are saying. Learn some technical analysis tricks and make your own idea about market direction. Nothing works perfect but you can increase your odds in your favor.


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