Saturday, May 19, 2012

Weekend Trading Notes on May 19, 2012

Those of us who were looking for a bounce on Fri (based on many oversold indicators) got our butts kicked. Market decided that red color is in vogue, and multiple consecutive daily closes on the lows are making me very nervous. This said, I would like to remain constructive and not panic, as it is never the thing to do when you trade. So I will make a case for longs here until 200 dma on SPX and DOW is broken on closing basis. Those who are short and reading the following notes, may want to consider covering at least a portion of their position, but more importantly, should be praised for their action as longs are now clearly losing the battle on so many fronts.

The biggest reason for initiating and/or holding an established long here would be QE3, which is now clearly being priced in the market, but NOT on equity side yet. In the last few trading sessions Gold, CRB index (which gold is also a part of), and Euro, have all diverged from SPX and are signaling Fed possibly coming to the rescue of slowing economy.




Since QE3 is just a hope, and hope is not a strategy for trading, let's discuss the reality. There is a strong technical support on SPX at this level. I would like to draw your attention to a confluence of 6 lines on the following chart: 3 fibonacci retracements, 1 horizontal, 1 trendline, and 1 double top extension below the broken neckline.

click on chart to enlarge

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