Jun 30, 2013


Short term signal: DOWN
Intermediate term signal: DOWN
Comment: we have a strong reaction higher, but the price is still testing MA20 and MA50. I would enter long trade if a see corective move lower with higher low.

Expected behavior for:
- sell off resumes - sharp move lower should begin
- the move higher is not finished - choppy reaction lower

Levels to watch SP500:
- 1640 61,8% retracement X pink?
- 1624 the gap - 50% retracement X pink?
- 1598 is now support
- 1582-1585 support, must hold if the low is in.
Levels to watch Xetra DAX:
- 7870-7840 - is support for the short term move down
- 8040 - is first resistance to the upside
- 8070-8130 - the gap/strong resistance/MA50

On the weekly chart I am posting for months that before a significant top we have acceleration phase(which is not "THE TOP"), correction, a rally to new highs and topping for a while. We had this behavior before the top in 2007 and before significant tops in 2010 and 2011. I wanted to see if the same pattern repeated in 2000... the answer is YES. I think that it is all about psychology - before the top the bears give up, everybody jump on the long side which causes strong rally, the bull burns its energy, the herd can not understand that the party is over which causes the new high and the smart guys need to offload their long position which causes the topping process before the reversal.
When we talk about psychology - I was asked once about gold after the first sell off... than I explained about psychology, that the first sell off is not the low, it is followed from a rebound and another sell off to lower low which should be the bottom. So if you interested in GOLD the bottom fishing can begin:)

Note - acceleration phase is not just a strong rally, it is all about time. Usually a rally lasts from 2-4 months than you have a correction. Rally lasting 5-6 months or longer without correction is indication for too much excitement, the greed can not be cleared, the bull burns its energy too fast which leads to a significant top.
Now why I post this chart - do you see the correction? It is 1:1 with my green scenario. I have no prove that the green scenario will play out, as I wrote it is more feeling... but I find the fact interesting and we will have a road map if it is the real deal:)

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