Dec 18, 2010

Weekly review / Седмичен преглед

Hello traders!!!
I expected a little bit higher prices this week and that is what happened. DJIA is 81 points higher for the week. Next week I expect the same action. Look at the first chart - it looks like we have a triangle or a pennant and the price bounces from support and EMA50. MACD is turning UP again at the zero line. Seasonally are the last two week positive too.
But be careful the indicators and the market breadth indicators are bearish. Pay close attention on Monday if DJ open higher or lower than the close on Friday.

The big picture has not changed. I expect a correction but with such extremes at the market breadth indicators and the sentiment I think that now there is high probability for a deeper correction. The two scenarios are shown bellow. The last two charts show how this scenarios look like on the daily chart.
- If we have a deep correction that means, that the market is no so strong as i thought and the next move UP can end up at the first resistance around 11750.
- If the market work out the overbought conditions and stays above ~11000(the November lows) this will be a signs of a strength and the move could reach the next resistance ~12750.
With the divergence on daily chart MACD and RSI,the market breadth indicators and the extreme bullish sentiment, I am leaning more toward the first scenario - a deeper correction, but lets wait and see what the market will tell us.

More shallow correction

Deeper correction

SP500 percent of stocks above MA50
The first divergence warned us about the november correction. Now we have much bigger divergence. That is way I expect a bigger and longer correction.

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