Last week was a wild ride for the market. The S&P cash tested and held their 200 day m.a. (for the 2nd time) and on that same day we had a positive rumor about the Greek bailout (or whatever you want to call it) soaring the market higher making it appear that to those who bought at or in front of the S&P's 200 day m.a. were going to look like geniuses (impressive how positive rumors come out at important technical levels). We had a 22.00 point rally off of the 200 day m.a. This rally also brought the NASDAQ futures back above their 200 day m.a. Giving us signs that we may have a possible short term bottom. With Dow Industrials and Transports remaining strong I thought that this could be the case, but after Fridays action I am not so sure. Traders were selling into the close making it appear that no one wanted to go home long into the weekend. All the major Indices closed near their lows of the day (
bearish action).
Going into this week I will be watching the overnight trade carefully to see if Friday was just traders closing out their longs before the weekend or if this is something else. I have been saying for awhile now that although the market has been trading weak for the past 2 months no major long term support has yet been broken in the S&P or Dow. I have been saying that our leader is the Dow and I am sticking with that. The Dow Industrials are currently 158 points away from testing their 200 day m.a. (
11,776) and 379 points away from their low for the year (
11,555). Until the Dow takes out its 200 day m.a. (
11,776) and then makes a new low for the year I am not sure that the primary trend of the market has turned bearish. I believe in the Dow Theory for the primary trend of the market (this is not my only tool but an important one). So until the Dow Transports (
4,906) and Industrials (
11,555) start making new lows for the year at the same time I am not convinced that the primary trend of this market has turned bearish. Going into Monday I think the 200 day m.a. (
1263.40) in the S&P will determine the direction for the week. If we can sustain trade above it then I think you will see a rally testing last weeks highs. If we cannot hold the 200 day m.a. in the S&P then I think you could see a sharp sell off in the markets and we will probably test the lows of the year in all of the major Indices. This is where the true test of this market will come. See charts below for more insight on the week ahead.
(200 day m.a., 50 day m.a., 20 day m.a., 10 day m.a., and unchanged for the year is green horizontal line.)
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