Trade Plan For Monday-SPY, QQQQ, IWM, IWM, EURO, US $, CHINA INDEX
Posted on June 13, 2010 by Chief Market Technician in EXPLOSIVE STOCK SETUPS(premium), GLOBAL CHART ANALYSIS
The market on Friday ended higher but the move was on extremely light volume.
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Light volume bounces into resistance areas are extremely dangerous in correcting markets. This type of move is especially dangerous right here since we are trading right below some high probability shorting zones. If the sellers show up like they have been near resistance areas and knock the market down on heavy volume, things could get very ugly. The good news is we are trending sideways and building a base off the February lows (which could become support) but the bad news is we are building this base below the 200 day moving average. This is very negative and historically has led to lower prices
Trading in this market
Let us remind everyone that in order to get some good entry points, with a high probability of a big move, we must first have a definable trend. We need an up or down trend or at least a trading range but obviously the trend over the last 1 ½ months has been so volatile that taking either long or short position just got you chopped up. Being on the wrong side of the trend like buying dips in a downtrend is can be ruinous to your portfolio and fortunately this is what we have been able to avoid for the last 6 weeks
We now find ourselves in an interesting predicament. We are technically in a downtrend but may be building a base at the old lows. The problem is these old lows are below the 200 day moving average level on most of the major indices. Over the past couple weeks the 50 day moving average has also started to curves downwards for the first time since before the March 2009 bottom. Combine this with these awful volume patterns and we are not seeing the sort of things that you want to see in a healthy market.
NASDAQ back above 200 day MA by a couple points but right at resistance at the downtrend line and 21 day MA
Russell 2000 bouncing above 200 day MA but right back up into downtrend line
S&P 500 is feeling pressure at its 21 day ma and is close to its 200 day ma
The Shanghai index (SSEC) is showing some bottoming action which could help lead the Euro and then the US markets higher. This is something to watch closely. We could see a 10% move higher until it bumps into overhead resistance. Overall the China markets are still a mess.
Eur/usd right at resistance at 21 day ma and old lows. Could stall out but if not could see a big pop up to 1.28 which could mean a big rally in our market and a short term feel that the European crisis is over. This and the China markets moving higher could be the spark that reverses this downtrend.
We will be watching to see if the sellers knock down this market at the specific resistance levels we have pointed out. If they can muster up enough strength and volume to break through to the upside and build a base above those levels then we may have a bottom. We still think odds favor a reversal lower but we will now more in the morning.
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