Friday, November 5, 2010

A very bullish week

With elections over and Feds behind their back bulls pushed SPX above April's high. One strange thing I noticed is that the price is way above 5 days SMA, EMA50 and even EMA25 on hourly chart. In general price is either touching one of the EMAs or is a little bit above or bellow them (in a downtrend). The only time price is moving further apart from EMAs is when the trend changes. Have a look at the beginning of September or at the beginning of August when market moved down. I do expect price to come close to the rising EMAs next week.

As usual, the big question is now "what's next?" After such a long run on the upside a small correction is not unthinkable but my bets are still on the bulls on longer time frames. What is the difference between the other two legs on the upside (1050-1120 in June and 1020-1130 in July-August) and the rally started at the beginning of September? The difference is now that weekly DMI has turned bullish. This is a very good long term confirmation indicator. Just to put things in perspective, weekly DMI turned bearish in November 2007 and stayed on red until June 2009. So pretty much kept you out of the bear market. It went a little bit bearish during June-July 2009 plunge then went on green and stayed pretty much on green until April this year. It went a little bit bearish on January 2010 but other than that was practically bullish from July 2009 to April 2010. Market had a few strong moves up and down between April and September (and we managed to scalp 70-80 points) but DMI stayed on red all this time and turned green only a month ago around 1170. This suggest that we are probably at the beginning of a major uptrend. Within this major uptrend we may have a few legs up and a few legs down, that is the reason I don't advice anybody to buy at this point unless you have a long time frame in mind and you don't mind a "visit" towards SMA200 before going further up. Personally, as you already know, I am going "all in" when a see a "bullish" EMAs crossing and "all out" when they give a bearish crossing. I don't buy or sell in between "buy" and "sell" signals. But everybody has it's own investing style.

All the best!



  1. S&P is in a bull trap between 1217-1230.Form here all new absolute lows.Its' a lethal place.The mistake of many Us investors is that they don't compare their indexes with world indexes that have a weight bigger and bigger.
    For S&P is end of the race like for Bovespa,Indian index and many ther ones.
    Next weeks be short.All new absolute lows ahead.

  2. Lorenzo, you are guessing here, it's impossible to know when the top is going to be or how low the market is going to plunge.

    S&P is still the most important index worth watching. Even if I take into consideration non-US indexes, Chinese, German, Indian, Brazilian, Russian, just to mention the most powerful economies in the World the picture is also extremely bullish.

  3. Good post, Babaro.

    What are the parameter settings you have used while drawing the EMA lines? Thx.

  4. Babaro,
    I also see that you use different numbers while drawing the EMA lines on different charts. Since the crossing of the EMA lines is the only indicator you use, how do you decide on which numbers to use on a chart? (eg. you've used 15 day, 30 day and 200 day EMA lines on UUP chart, and different ones on S&P chart.)

  5. Very good questions, Jim. The truth is that you can chose ANY pair of EMAs to give you buy/sell signals and this can give you major headaches since, as you said, EMAs crossing is the only indicator I am using. I think this deserve a longer answer so I am going to write an article about this today or tomorrow

  6. Hello,

    What ema combination(s) have been successful in trading the USO and DTO ? Time frames used?

    thanks !

  7. oil it's too choppy, it's hard to find any good pair of EMAs. GOLD, silver and other commodities are also too volatile for my taste but they can be traded with the help of EMAs crossing a little bit better than oil.


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