Forth up day

Still more room to the upside or another good entry for your short ETFs? Four up days in a row and 60 points up in a week should make bears very nervous but the ball may still be in their court. I do expect a pull back as soon as the downtrend line is going to be hit (1080 today but on Monday it will be lower. These are visual estimates so they may be 2-3 points off in any direction). For bulls, a sideways consolidation is going to work the best. A small pullback from 1080 but no more than 30-35 points is going to allow them to climb above the downtrend line without too much effort. After that they may try to climb above 1105 and SMA200 one more time. Very bullish is going to be if the daily DMI is going to turn green for the first time since April 26. We are not there yet but keep an eye on this momentum indicator. The third scenario is SPX going down from the downtrend line with no support in the 1045-1050 area. This is going to spell more trouble for bulls since a drop bellow the previous low, around 1022, is going to be possible.

The uptrend this week was very nice. EMA50 did cross EMA100 today giving me another buy signal (although DMI on 60 minutes charts seems to be a better timing indicator lately). The price even climbed above the 5 days SMA. The trouble is that the volume did not confirm the movement! The volume actually went down from Tuesday to Friday. "Only price pays" so don't dismiss price action because the volume is low but is always better to have confirmation from this indicator. From bears' perspective this is exactly what they are expecting, drops on increasing volume and rebounds on decreasing volume. Of course I am talking about bears that are trading on longer time frames. Those trading on short time frames should be out of the market right now. Once again, pick your time frame and stick with it!

babaro

P.S. 1) I've got many clicks on the adds displayed on this page this week which make me think that the majority of the people visiting this page are bulls since I barely get any click on the down days :)

    2) Here is the solution for our troubled economy:

Third up day in a row

We didn't have three up days in a row since mid April. I don't think this is extremely significant, just a fact to cheer up the bulls. SPX cleared another two resistance levels, 1060 (the "neckline" on weekly chart) and 1067, the previous lower edge of the 1067-1105 trading range. DMI on 60 minutes chart has turned positive yesterday and has consolidated its position today. Market is moving way too fast for my timing indicators to make me money, especially EMAs crossing. I bet tomorrow EMA50 is going to cross EMA100 on 30 minutes chart even if market remains unchanged or is going down a little bit but at 1080 it may be a little bit too late. I say this because around 1080 is the second downtrend line and we may see some good resistance there. A sharp move down from 1080 is going to keep the long term downtrend intact and I would expect SPX to go slip bellow previous low, around 1020.

The only people making money in this environment are very short time traders, anybody else, either bulls or bears who kept their stocks longer than 3-5 days were lucky if they've got even in the last month or so.

I'll keep my eye on the main downtrend line. If SPX manages to close above this line it may give another shot at SMA200. A second scenario would be SPX moving down from the downtrend line but finds support in the 1045-1050 area, that is still going to be good for bulls. The third scenario is the one I mentioned above, SPX hits the downtrend line then goes down like a stone, with no support at 1045-1050, opening the possibility of moving bellow the 1020 low. I'll also keep an eye on DMI, a momentum indicator, especially on 60 minutes chart.

Have a look at some stocks that have shown some strength lately, CF, THO, CCRT, BP, MOS.

Bulls win the day

Today was bulls' turn to scare the pants out of the bears. Bears are still in control on long time frames but they should be very cautious here since some important technical levels were blown away today.  The most important level is around 1050, the February-July resistance line, or (if you prefer) the neckline of the "head and shoulders" people are talking about. Weekly charts place the neckline around 1060 so I would say there is a whole resistance area (1045-1060) we should keep an eye on.

Bulls' main job here is to keep SPX above 1045-1050. The major danger comes from 1078 level where  SPX is going to meet the second downtrend line. If SPX bumps into the downtrend line then moves heavily down we are probably going to see lower lows, bellow 1020. But let's not anticipate, better react to the market moves. Right now, on short run bulls seem to be in control and this is evident from the fact that DMI on 60 minutes chart has finally turned green.

babaro

Another reversal day

It doesn't mean too much since it was a bearish reversal in a powerful downtrend. It does matter when it goes against the main trend like it did happen two weeks ago or on February 5th (bullish reversal). At least we finished in green today after 5 straight down days! As I said in the previous article if DMI on 60 minutes turns green bulls may hope for a short term rebound.

The resistance ahead is pretty good, first the downtrend line then the 1045 resistance line. On daily and weekly charts the resistance line is at 1050 and 1060 respectively so we should consider the whole 1045-1060 area as a resistance level (in general you should view support and resistance as areas not fixed levels). SPX did bump into the downtrend line in the morning (at 1040, not 1035 as I said in the previous article) then went down like a stone. Tomorrow is going to be easier to go above this downtrend line since now is stands around 1032. I won't have any bullish impulse unless I see at least DMI on hourly turned positive that is a very early timing indicator and therefore not as reliable as EMA50 crossing EMA100 on 30 minutes chart.

We do have now a weak 3 days support line at 1021 and a powerful downtrend line at 1032. On short term any close above 1032 or bellow 1021 will pick the winner. On long term things look really bearish, with  SPX bellow a flat SMA200. Unless bulls move quick SMA200 is going to tilt down, the ultimate bearish signal.

babaro

P.S. Meantime BP has generated a "buy" signal!

Bears refuse to take a break

Another terrible week for the bulls with SPX losing another 50+ points and major support lines being broke on the downside. The most bearish event, on long term, is the break out of the 1067-1105 trading range then  bellow 1050, the previous daily low.

On intermediate time frame I see the downtrend losing a bit of momentum. I judge this by looking at the DMI, that is almost turning bullish on 30 minutes time frame. Unfortunately, DMI on 30 minutes charts is not very reliable but if DMI turns bullish on 60 minutes chart, I'll take notice. So if you still have some longs in your portfolio better wait for a little bit longer to see what happens.

Two possible resistance levels ahead, one is the most recent downtrend line that now is around 1035, the other is, obviously, 1045 (or 1050 on daily chart) the former support line. A short term rebound towards these levels is possible (look at 60 minutes chart).

Another hint about of a small rebound comes from the daily chart where you can see the price just a little bit above the downtrend line. However, a drop bellow this line is going to be really painful for the bulls.

What is the bigger picture? Many scenarios are flying around, we are going into a double deep recession, we are going bellow March 2009 lows, Dow will go down bellow 1,000... You heard them all. Personally I don't really care if thismarket is going to hit 2,000 on SPX or 200. Of course I do care if the economy is heading up or down, we all have jobs, friends and families, but for the purpose of trading it doesn't matter. What it matters is to be on the right side, either long or short. So, when i say the bigger picture I am not referring to any of these scenarios, I am just looking at longer time frames (weekly charts) to see what messages market may send from there.

I am not fan of looking back at charts and saying "ah, I was supposed to buy here and to sell here". Anybody can do this, the real challenge is make these decisions in real time. Another trap is when comparing this recession with others in the past. Which one to chose, 1973-1975, 2003-2007, 1929-1933? We need to have a look at these past recessions but we need to be very careful about the extend of our conclusions. Every recession is different.

Let's have a look at the famous "head and shoulder" pattern. We do have a left shoulder around January's high, a head in April and a short right shoulder in June. the neck line according to weekly chart was around 1060. If I measure the distance between the top of the "head" and the neckline I am getting around 150 points. Subtracting this from 1060 I am getting 910, a level where the plunge should stop. I must say I am not fan on "head and shoulder", since you can imagine "head and shoulders" at any time and any place. Only a few of them are real. What you need to be concerned as a bull (or happy as a bear) is that SPX went bellow a multi-months support line, the one that 'head and should" fans consider now the "neckline".

The irony is that this time the "head and shoulder" prediction may be right. I am saying this because coincidentally the 2007-2009 recession downtrend line is around 930 which constitutes the major support line for the 2009-2010 rally.