Saturday, January 21, 2006

Just some perspective

Given the good breadth on the NYSE, i had thought yesterday that the divergences between the DOW and SPX would be resolved to the upside. Boy, was i wrong ! We saw a washout kind of move in all the indices. So have we topped ? Has the IT correction begun ?

It's too early to be talking about any sort of trend change here. A week back i said, when we have a momentum sell in the IT uptrend, the price comes back and tests the rising moving averages i.e the 34/55 EMAs. My own expectation from the beginning of this correction was for the price to come back and test the 34 EMA. Yesterday, we saw a failure at the 34 EMA. So the next expectation is the test of 55 EMA around SPX 1258 or we may slighly undershoot it, given the high mometum of the move.

To get a better perspective of what's hapenning i have shown a ribbon chart of Fib EMAs (3,5,8,13,21,34,55). Notice how all the EMAs converge and crossover when a trend change happens (beginning and end of Oct 2005). Currently we are nowhere close to that kind of a move to even start talking about any trend change. Any talk of trend change at this point is just one person's opinion or gut feel. The price action has not yet confirmed a trend change or even close to it. A big red candle does not mean anything other than creating fear and bearishness among the retailers. Also notice how the 55 EMA flattens out as the topping process happens and as the price retests the prior highs. A retest failure and the covergence/crossover of the EMAs would be a bearish sign and a sign of trend change. We are nowhere close to that.

Anyway for the very short term, since the daily momentum continues to be strongly down and the hourly is very oversold, we should see some more downside probing, backing and filling action around the 55 EMA as the bottoming action happens. The next leg up and the strength of the move will tell us if we have indeed topped or if this move down was just another pullback in the uptrend.

Thursday, January 19, 2006

Momentum buy signal on the Daily charts

SPX and NDX gave a momentum buy signal on the daily charts. DOW is still on a momentum sell. Now the question is whether this divergences will resolve to the upside or downside. Based on how strong the RUT and SMH were today and the fact that the Mclellan Oscillators on the NYSE and Nasdaq crossed back above the zero line, odds are that the divergences will be resolved to the upside. We need to see a strong follow thru tommorow to keep the bullish case alive. Otherwise as i noted yesterday, the rising EMAs will start to flatten out, causing a potential trend change.

Wednesday, January 18, 2006

Still on a momentum sell

My system has been on a momentum sell since 1/12 and continues to be in that mode as of today's close. If we close in green tommorow, i will get a momentum buy signal on the daily again. On the other hand, one more down day tommorow will start flattening the rising EMAs and could potentially change the trend. But for now, the daily trend remains up and this is nothing more than a pullback in the uptrend. Since i trade the momentum and not the price trend, until there's a momentum buy, i will continue to play the short side of the market.

Daily - Sell
Hourly - Sell
30-min - Sell
15 min - Buy

Tuesday, January 17, 2006

3 Gap play

As posted on 1/12, if the market closes in red on 1/13, my daily momentum would kick into sell. So as of 1/13 my daily momentum has been on a sell and continues to be in that mode as of today's close. But remember the daily trend is still solidly up. When this happens typically the market comes down and tests the rising EMAs (34 or 55).

Intel report has caused a selloff after hours, which means there will be a gap down on all indices tommorow morning. The troubling part for the shorts at this point is, we have a 3 gap play on YM and ES, i.e three unfilled gaps on 1/12, 1/17 and 1/18 (unless we fill today AH selloff in the overnight session). When there is a third gap down, typically the market goes into a climactic selloff and reverses swiftly. So i am looking for some kind of bullish reversal in tommorow morning's session