Tuesday, August 9, 2011

Insane swing day...

...but I am not very impressed by this bullish action since it was expected after a huge sell off. I gave up looking at shorter time frames since they are not important anymore with these crazy swing days. We need to look at the big picture and the big picture is bearish despite today's action. The most disturbing, from a technical point of view, is SPX slipping bellow its support moving average, SMA 75. In the last 20 years only once crossing of SMA 75 gave a false sell signal so I still put my bet on EMA 20 crossing EMA 40 as THE signal that a new bear market has started since at that time they touched but did not cross. 

Please note that the "death cross" did happen today, SMA 10 did cross SMA 40 on weekly chart. However, the cross is not confirmed on the daily chart, that's why the press didn't make a big deal about today.

EMA 20 did not cross EMA 40 yet but they are "slow" and they may need a few weeks for this to happen. 

Meanwhile, the rally started today may continue but we could see, once again, SPX inability to cross above SMA 75. Look at early 2008, first we had a triple top, then market slipped bellow SMA 75, we had a small rally, EMA 20 finally crossed EMA 40, followed by a 100 points drop, nice 180 points rally making a higher high but rally stopped bellow SMA 75 that by now started pointing down. Things do not need to happen in exactly the same order but overall they may go the same way. 

Pay attention to weekly DMI, as this is going to provide extremely valuable information regarding small or big rallies. In 2008, after market slipped bellow SMA 75 on weekly chart DMI turned red for good and didn't turn green until mid 2009 despite many fake rallies in between. 

In the near future I expect more volatile days but with little change on weekly basis. The things we need to watch are the resistance around SMA 75 and EMA 20 eventually crossing EMA 40 on weekly charts.

Keep in touch!


P.S. Feel free to leave a comment. I am always open to alternative interpretations of the current market action.

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