DMI consolidates

Here is my 11 cents opinion (that's how much I made from my AdSense adds today :), DMI continues to consolidate its position so it's increasingly likely that we are going to get out of the trading range for good. Nothing is for sure in the stocks market, you already know this, but you need to bet on the direction that has the highest probability. Keeping in mind the good tracking record of daily DMI we should expect more upside movement from here. Sure SPX is not going to move in straight line from here but I trust today's break of the 1105 resistance level more than I did it in June. The difference? You guessed right! It's called DMI. Back then SPX started moving down before DMI had the chance to turn green. When are we going to have a down day most likely DMI  won't change red again. That is going to be a good entry point for some reluctant bulls.

Another well watched level was touched today, SMA200. We are talking here only about 2 points on SPX so is not that significant right now but it can become significant in the next few days so long term players who use SMA200 as a timing method prepare to get in. 

Hourly chart doesn't look bad either, DMI is positive, price is above a rising  5 days SMA and you can easily notice EMAs crossing.

Playing devil's advocate I am redirecting you to yesterday's article where I posted a chart with "volume at price" indicator that not only gives you the price levels where most of the volume occurred in the past but also tells you how much of the total volume belongs to bulls and how much to the bears. Looking at the chart you will notice that bulls outpaced bears almost 2:1 which means that this level (1100) is a better resistance level than a support one. We already passed this level so now it should act as a support but my point is that you should expect this level to offer less support if this market is going to go down than the resistance you saw it when the SPX was bellow 1100. This is the bearish scenario but at this moment I do favor the bulls over the bears. My skepticism comes from the fact that I was humbled by this market many times and I like to present both faces of the coin even if I do favor one of them. Every single day I am seeing people absolutely sure that market is going either up or down and I know for a fact that I am either dealing with newbies or with people investing for a while but too full of themselves to admit they could be wrong. Maybe this attitude make them winners in this aggressive World where we are living but in stock market stubborn guy pay their arrogance with their own money.

babaro

Daily DMI slightly green

Very bullish week. DMI turned positive for the second time and it is possible that we are going to get out of the 1050-1105 trading range for good. Still I want to see SPX above 1105 before thinking about a possible long term leg up from here. Remember, money can be made either long or short so the least biased in any direction the better. Let's see SPX above 1105 and above SMA200 first!

Notice two support areas, around 1065 and 1050 and the resistance line at 1105. We do have an incipient uptrend line. Of course we need more points to build a nice uptrend line but it looks promising so far with too lows at 1022 and 1064 (or better 1072) and two higher highs, 1098 and 1102.

Price moved above both SMA50 (the "orwellian" 1984) and EMA50 (1092), still bellow SMA200 but above EMA200. What's the difference between Simple Moving Average (SMA) and Exponential Moving Average (EMA)? A simple moving average, say SMA50,  adds all the closing day values then divides the sum by 50. There is a potential big problem with computing data in this manner, every day of the last 50 has an equal weight (importance). However, if in the last, say 10 days, market made a big move the move is not going to be that obvious by looking at SMA. This abnormality is corrected by EMA that gives the recent data more weight. The majority of the people, especially older traders, still stick with what they learn first, SMA, that's why you will rarely hear anything about EMAs. Personally, I find EMAs more meaningful, especially when I am looking at moving averages crossing each other.

This is the most bullish momentum since the beginning of the plunge, in April as evidenced by the daily DMI. Most of the time, once DMI changes direction is stays that way for a long period of time. Sometimes, it gives first a warning, moves back to the old direction then gives the real signal. The warning and the actual signal are spaced only a few days apart. The only time this is not true is when market is trading in range (look at November-December 2009 trading range). If this market is going to slip again in the 1050-1105 trading range you will see DMI turning negative one more time but if you see DMI consolidating its bullish position and no turn to red in the next few days we are finally going to go see a decent leg up. DMI is not perfect but for me at least is the best indicator. When the signal is fake it only last a few days. I found this indicator by testing 50+ indicators and oscillators. You will hardly see people even mentioning DMI on their book or their website but everybody who tried it at my suggestion said is has improved their trading by a lot.

This is a turning point, whoever wins the daily DMI wins the the next leg.

"Volume at price" indicator shows that most of the volume happened around 1100 so this is a very important support/resistance level.

Have a happy trading week!

babaro