Jun 11, 2011

Weekly review / Седмичен преглед

I have thought that we will see some kind of bounce this week... it does not played out this way. After four trading sessions the indexes were flat and then on Friday.... strong sell off. The picture is bearish no doubt. The DJIA and SP500 have broken the trend lines and the next support level is shown on first two charts bellow - the trend line from the March 2009 bottom MA200 on daily chart and EMA50 on the weekly chart.
The Problem which I have with this scenario is that everybody is focused on this level and the berish sentiment is very high. The market never rewards everybody... never.

The intermediate term view has not changed a lot. I think we will see soon a bottom followed by a rally, but do not get prematurely bullish we have not reversal signal yet.
I see two equally probable options - first a rally to marginal new highs and the second test of the broken trend line and the last minor highs around ~1340 and then another sell off (for both scenarios) to much lower levels.
The short term - I have no idea how the indexes will form a bottom. They can start a rally on Monday - we have a triple divergence on the hourly chart (see bellow). Selling climax and another big red candle hitting the support level. Pushing down and strong reversal printing hammer candle at support level... I do not know lets wait and see, but I think we are near to a bottom and getting too bearish now is riskier.
This triple MACD divergence on the hourly chart makes me cautious getting too excited on the short side. My best guess - move to the resistance level around 1300 (another 30 points reaction).
DAX finds very very strong support between 7000 and 7050 for the last three weeks. The oscillators are showing triple divergence now. The probability is very high that we will see at least two to three week rally and prices testing at least the last minor highs between 7350 and 7450.

In a bull market this levels usually mean a bottom. Currently at 16,20. We are still in a cyclical bull market. 7% correction is not a trend reversal. We have had several correction of this magnitude for the last two years.

The sentiment is very bearish look at the put to call ratio. Such levels we have seen last time in 2009 March and July. What have we? Six weeks correction and 100 points on the SP500 around 7%. I do not think that this is very dramatic, but the sentiment is again the world will crash and burn....

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