Market commentary for 01/05/2009
Good day!
The 6% move in the market was nice and I'll take it, however Monday the real story starts to be written. There was little of no volume last week. Bad news continued and the market continues to ignore it. Perhaps the Obama rally has started, we shall see.
I didn’t expect that strong of a bounce. I can’t remember when I have seen three trend days in the row. Rarely do we see two in a row and three is really a surprise. Truth is we have never seen a market this weak, so it looks like we must use that condition for strong reversals. The main problem was volume. On the daily charts we can see the rally started with extremely low volume which was because of the holidays. Since the volume increased every day and the indices broke previous highs we have a chance for an explosion at Monday with big volume, but also we must know that increase in daily volume was still less than normal.
Let’s start with 60 min charts. Friday we can see the indices formed a third buying wave. We can also see the last buying wave was bigger than the previous on higher volume which is a strength sign. We can also see that only the DIA closed at the daily resistance area, while the SPY and the QQQQ broke it and closed on new daily highs. Also, Friday's buying pace was strong which is a strength confirmation again. We can see the same on the daily charts. The SPY and the QQQQ have room for a possible Monday explosion, while the DIA need to deal with the previous high. To have a clearer picture we need to look at the weekly charts. The SPY and the QQQQ broke a small (maybe too small) consolidation and after the CCI setup they have room for a move to the 20sma resistance area which is the next target area. Again, the DIA still needs to do that. We have a phoenix reversal pattern, but I still have some concerns. First is the weekly pace. The selling pace is stronger than the buying pace, plus a weekly volume decline. For a true reversal pattern I like to see a stronger buying pace than a selling pace and also I would like to see heavier volume on the bounce than selling volume. For me those are two important indicators for a reversal pattern. Daily charts suggest that we could see a gap up, also the SPY/QQQQ have room for more buying, but after three 60 min buying waves and after reasons what I explained on the weekly charts I will use extra caution for new long setups, actually I will use them only for fast trades, nothing longer. When I see weekly charts I still don’t trust the reversal pattern will work. Also, I expect to see a true direction next week, because generally I don’t trust the holiday market action on small volume. After three trend days, we can see a gap up, also we can see strong move up, but also we can see a stronger correction also. Where is the exact top it is hard to know and because of that it will be more watching than trading for me. It will be good time for taking profits for long trades and possible 5/15 min CCI short setups (day trades).
I hope you all had good holidays and I also hope we will have good year in front of us. You all know that the entire service is free for now and I still like to build my service so every suggestion on any column will be very helpful. Because of that I ask you to send me any suggestions that I can improve this service.
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