Sunday, October 23, 2011

Outside the trading range

On Friday SPX managed to close outside the trading range and 23 points above SMA 75. This is the 4th break out of the trading range channel, we had a strong one on the downside and two weak ones on the upside, all of them short lived (one day). It remains to be seen if the last break is going to be for real one or is going to be another another false one. In order to be real we need to see a confirmation of the upside movement with market continuing to steadily go up and an eventual retracement towards the upper edge of the trading range (1,230) or at worst towards SMA 75 (1,215).

Right now bulls are having their best momentum since the beginning of the plunge, a few months ago, with SPX above both the trading range and SMA75 and daily DMI turned positive. Of course until weekly DMI turns also positive the long term is going to stay bearish but so far so good for bulls. Not to mention that EMA 20-EMA 40 crossing on weekly chart is still bearish!

Looking at the2 hours chart, the only time frame that gave decent signals as far as EMAs crossing was concerned I notice that breakout doesn't look as impressive since the upper edge of the trading range is around 1232 so we are only talking about 6 points above this level. 

As I mentioned many times SMA 75 on weekly chart functioned as a very good support/resistance level in the last 20 years (it gave only one false bear market signal in the 90's). SMA 200 on daily chart starting to point down is also a good indicator that market has entered a bear market. Most of all EMA 20 crossing EMA 40 on weekly chart was absolutely flawless in the last 20 years and beyond. I wrote an article last year about this EMAs pair crossing looking back to 1970 (I forgot the name of the article but you can look up) and the buy/sell signals were absolutely impressive. I think I used EMA25/EMA50 to take into account that the last pair of EMAs also functioned well for Nasdaq that tends to be choppier than DOW and SPX. If this time market manages somehow to "cheat 3 deaths sentences" (SMA 200 pointing down, market crossing SMA 75 on weekly and especially EMA 20 crossing EMA 40) then all these three long time, well tested, market timing methods need to be retired. It also means that the amount of market intervention is higher than at any times in history which is probably true. 

Let's see how market is going to react this week.

All the best!


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