Monday, June 27, 2011

Weekly update

I said last week that I am getting conflicting signals from daily and weekly chart and as a result I was expecting a flat week but I had a bullish bias. Well... I was right until 2 pm on Friday when bears got hungry and pushed SPX another 7 points down, enough to bring the market a little down on weekly base.

For this week the situation looks a little bit different. SPX stays now exactly above SMA 200 and 2009-2011 rally uptrend line. Any move bellow this level is going to trigger a huge sell off similar to that seen last year on May-July. One could ague that market already lost 100 points from the top. That's true but slipping bellow SMA 200 is going to cause a loss of another 60-70 points before reaching a support level. My target on the downside is 1,200-1,220.

What is the level where we can say market slipped into a bear market once again? As you remember from older articles the support SMA for SPX during 2003-2007 bull market was SMA 75 on weekly chart (SMA 375 on daily). In terms of EMAs, the best pair that separated bull market from bear market in the last 20 years is EMA 20-EMA 40 on weekly chart (or EMA 100-EMA 200 on daily). If you look at the charts one may argue that this pair of EMAs did not give a good entry, it was pretty late. That's true but it's also true that during the May-July crash last year they offered a very good support, they almost touch and also price moved very close to SMA 75 but did not signal the beginning of a new bear market despite what many "gurus" argued at that time.

SMA 75 resides around 1,200 right now so this is the 2009-2011 bull market support level. There are no reason to panic yet. However, I want to mention that both EMA 20 and EMA 40 on weekly chart are pointing down and SMA 75 is getting a little bit flat, both signs that the two year rally is getting "tired".

Finally, I want to clarify something so I don't confuse you more than usual :)
I mentioned a pair of EMAs (32 and 64 on daily chart) as the one that describes 2009-2011 rally. I said rally, not bull market. While EMA 100-EMA 200 (on daily) is a pair that functioned extremely well for decades to signal the beginning or the end of a bull market, EMA 32-EMA 64 is specific to 2009-2011 rally and nothing more. It did give a bearish crossing at the end of May 2010 and a bullish crossing on mid September pretty much at the same level. The reason I am showing this pair of EMAs is to make you aware that we may a situation similar to May-July plunge.

First things first, let's see if SMA 200 is going to hold today or not.

all the best!


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