Mar 28, 2010

Weekly review / Седмичен преглед

Weekly chart - the long-term picture and intermediate-term picture remain bullish. The prices are above EMA50 and MACD above zero.
This week the Histogram cross above the zero line and MACD cross the signal line, which is a bullish signal.

The Inverse Head&Shoulders which I have shown for several weeks has played out and has hit it's target ( ). But now the market is very overbought and as you can see the chart bellow DAX is hitting resistance. I think we will see a pullback before the market breaks it and go higher. This move higher will carve out a divergence on MACD and the Histogram and this will be the beginning of a much deeper correction.

On the other side we must open our minds for other scenarios - more bearish:)
It is possible that the index fail at this resistance level and carve out a Double Top or a complex Head&Shoulders pattern and this will be the begging of a serious correction, not like in July 2009 and February 2010 just 8-10%, but much deeper 20-25% or new lows... why not. I have shown the bearish charts bellow.

Bellow you can see daily charts of DAX and Dow Jones indexes. I expect a pullback to support levels. The Cup with Handle pattern is still in play.
( )

Short term indicators are showing danger ahead. Momentum is waning - the histogram is falling and the short-term RSI(5) shows divergence. The same picture shows the McClellan Oscillator too, which means the internals are weak.
That is why I expect a pullback and i do not believe that the indexes will break the resistance from the first try in this overbought condition.

Hourly charts.
The prices are still above EMA50, MACD above the zero line and the bearish candlesticks on the daily charts are not confirmed. So we should be patient.
I expect next week the wage to be broken. On the DAX chart you can see the two possible targets. The first is a parallel line of the broken wage carving out a steep channel. The second is the trend line from the March bottom.
Dow Jones hourly chart is not shown - the target is the trend line from the March bottom (see the daily chart above).

The Bearish case.
Many people believe that we will have double dip. I do not believe I am following the charts and I am open for everything:).
When to become bearish? - if after the pullback the indexes fail to make new highs and break the third trend line, or instead of a pullback we see a reversal and trend line break then I will be in the bear camp. Until then we should be more bullish, because we do not have bearish signs on daily or weekly chart.
So how will bearish scenario play out? Something like the charts bellow.
- Head&Shoulders or Double Top pattern.
- The third trend line (the fan principle) is broken, which means the trend has changed.
- MACD divergence on the weekly charts.

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