Monday, January 31, 2011

"Sell" signal needs to be confirmed

EMA 25 did cross EMA 50 today despite the 10 points gained by SPX! Price is almost 3 points above SMA 120 and DMI is still neutral so the sell signal needs to be confirmed tomorrow and for the rest of the week but my main signal has turned bearish on intermediate time frame. The system added another 80 points after giving a "buy" signal at 1205.

I am amazed by the perfect resemblance (so far) with April's 2010 market action, huge rally, a sharp move down (points 2 to 3), a multi-day move up making a higher high (3 to 4) then immediately making a lower low (4 to 5), short move up while EMAs gave a bearish crossing (5 to 6). Meantime SMA 120 was crossed a few times up and down (SMA 120 on hourly chart corresponds with SMA 19 on daily chart). While this may be very well a coincidence what is maybe worth noting is the "diamond top" pattern we had in April 2010. Compare the numbers 1 to 8 on both cases and you will notice that they perfectly correlate. Even the number of days it took this pattern to form on both cases is the same. It took 10 days to reach point 5 in both cases. Let's see if the market is going to also add the last two steps, 7 and 8, meaning another couple of days moving up and down SMA120 then the start of the actual correction.

As I told you in the past I am not a big fan of patterns I show you this more for entertainment.  What it is important for me at this point is to see the two EMAs moving further apart, daily DMI to turn red and once the market turned bearish I want to see EMA 120 at a safe distance from the price, not like last time, in November, when it was challenged 3-4 times immediately after EMAs crossed.

So, my biased opinion is that the intermediate time frame has turned bearish and nothing can prevent a correction at this point. As I warned you in the past this timing method is not perfect but statistically speaking the chance that a EMA25-EMA50 crossing signals a real shift in market direction is very good, from previous experience I would say 75-80%.

All the best!


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