Monday, January 21, 2013

Third week in a row on the upside

Good week for bulls who managed to push SPX 14 points up this week. The pullback I expected never materialized. With this advance SPX managed to climb above September's high. This is very bullish for the long term trend.

How much more is SPX going to climb? This is not a question I often adress because I don't like to make predictions. However, certain pattern has developed in the last few years and I think I can make a "guesstimate".

Looking at the 2009-2013 rally you can notice that each new high on long term timeframe was 50-70 points above the previous high. Since the last major high was around 1,470 (September 2012) the next one will probably be in the 1,520 - 1,540 area. This is assuming the long term uptrend will continue at the same pace. Either a new major high bellow 1,520 or one above 1,540 will be significative for the long term.

Another pattern I noticed is that once the weekly DMI turns positive roughly half of the rally is done. Since the last time the weekly DMI has turned positive was around 1,440, and if that that was the middle of the current rally (which started at 1,360) then the peak should be around 1,520. 

The two hours chart shows a bullish intermediate time frame pattern with a bullish EMAs crossing and SPX over 40 points above rising SMA 120. Despite this past week advance SPX did not climb above the upper edge of the trading channel maintaining the rally at a more or less constant pace. 

The best way of action at the moment is to buy any dip and hold at least for another 40-50 points on SPX.  

Finally, please notice one of the hottest stocks at the moment, RIMM. I don't know how familiar are you with "cup and handle" pattern, but this is one of the patterns I noticed at the moment for RIMM, a pattern that is bullish. The pattern got completed around 14, now the stock is around 15.8 so this could be a pretty good entry. Also notice the "golden cross" and a positive weekly DMI.

Have a nice trading week!


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