Market commentary for 06/01/2009

Market commentary for 06/01/2009

Good day,

May is over and it was a positive month for all the indices. It appears investors are looking at the glass as being half full vs. half empty with the economy. Gold, silver, oil and the rest of the commodities moved more in May than they have in decades. It also appears GM going into bankruptcy is no big deal. Perhaps we can make some sense to this. Let us look at the bigger time frame charts. I will start with Friday action. It was a very choppy day and also a worthless trading day. It was good for overtrading and scalp trading. But since I’m not fan of that, most of the day I was just watched.

It might be good the indices closed strong but if you followed the market action all day you will see that run into the close was only good only for a scalp trade and I still think that was worthless for low risk setups.

To have better view lets go on to the bigger time frames. The daily charts we can see the DIA closed at the daily highs. The SPY finally reached (at the end) the 200sma resistance area while the QQQQ closed at a new daily high. That looks promising for a long continuation but since it was run into close I won’t bet on that.

The weekly charts are declining volume. It does not mean buying will stop. We can see continuation with less volume but we must know the risk will increase and we must count that in our trading plan for new trades. The SPY and the DIA have room for another push in to the next resistance area. It is not far away. The QQQQ closed at 50sma resistance area but the pace is ok which suggests more buying pressure.

Let's look at the monthly charts. The DIA has room to reach the 10sma resistance area, same for the SPY (small room) and the QQQQ formed continuation bar. The volume decline is evident and we see that better on the weekly charts, but the monthly charts are telling us those indices still have room for more of an upside move. Not much but those are monthly charts and in next month we can see a move up and the correction which can result in reaching the resistance area and a pull back.

What is the conclusion? We can’t be sure of future action. The charts are helping us predict possible action, but we can be sure of the risk which is very important for us. With declining volume risk for the long side will increase. Of course it will be high for short side also since we don’t have a reversal pattern or a signal for it. Monday will be very important because it will tell us how strong and real the buying was into Friday's close. It could be a start for another strong week (weekly charts show us that indices have room for that) or was it a just game to bring more buyers in and then the correction can start. For now the charts suggest we can see more buying pressure. I will be very cautious and I want to first see Monday's open and morning action for confirmation. Over the weekend I will use end of the month for scanning over month charts too, for possible swing trades but I will pay attention to stronger and weaker charts for both directions. I still think that weekly correction can start anytime, but I won’t fight it right now. I will wait for the signal. Let’s go with market and be ready for changes.

Wish you all good trading!!!

Kind regards.
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Ivica