Sunday, July 25, 2010

7/25/2010 Bullish Signals Begin to Confirm

Good Evening Traders,

I hope everyone had a productive weekend. I am using Stock Charts annotating tools for the first time tonight. I hope the chart is easy to read and helpful. I'm starting a temporary job on Monday and wanted to make weekly projections using a longer time frame in case I am unable to post as often this week. I used Stock Charts and not Ninja Charting because Zen Fire does not store enough data to do relevant calculations on a daily time frame. I wish they did but you get what you pay for I guess :) (it's free!)

I'm going to explain the signals I see starting from the top down on the chart. First the ADX. ADX is similar to the Sine Wave indicator I use on Ninja Trader. When the two ADX lines cross there is a change in trend. Notice the lines cross in March confirming the uptrend and then again in May confirming to downtrend. The similar setup is our fist clue that a new trend is about to emerge.

Next I see the Bollinger bands have expanded and price bounced off the center band nicely. The 50 day EMA and 200 day EMA have been penetrated to the upside and the 50 period is above the 200. You can see by the simple trend-lines I drew that the downward trend has been broken and the horizontal resistance has been overtaken at 1099 with a close above that level. In addition to the trend-line violations, price has formed a higher low and a higher high.

A stochastic value above 50 is bullish and the upward slope is also positive. But I try not to look too much into the stochastic. Its good for identifying tops and bottoms in a range bound market but sucks for capturing trends. It could remain pegged at overbought or oversold for a large duration of a trend. Take a look at the MACD though. The Histogram has ticked up and the MACD line is about to cross above the zero value. When the MACD went last went negative it was "flash crash" day.

The last time all these indicators lined up the market began its correction. I still believe that long term the market will go lower. Honestly I believe that the best investments are gold, shotgun shells, canned food, liquor, and cigarettes (long, long term). In the mean time, I expect responsive buying until we get up to the June high of 1131.

There is a lot of bad news now behind us. The oil spill is over, European bank stress tests are done, Greece seems to have their stuff in order, and the "Invisible Hand" will want to juice the market going into the fall elections. So plenty of reasons to think like a bull (at least for now).

I may trade ES tomorrow if I get home early enough OR if I am up early enough. If I do I will be looking for initial support at 1101 area then resistance areas at 1109.00(pivot), 1114.75(6/22 high) and further down the road, the June highs. ES got to 1128.00 in June. There is about 25-30 points of upside to work with. I favor longs, at least for this week! Good luck everyone make some $$


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