There's been plenty of news over the last few days, and sifting through all of it can
be a challenge. The markets gave us a great three day rally based on some of that
news, and today looks to be just as strong. This rally, though, is as potentially
dangerous as it is potentially profitable. Today's TrendWatch will be short, sweet,
pointed, and hopefully at least will make you think about whether or not you're
willing to buy into what appears to be a bullish trend.
What looks good: Some indices are now above the key 200 day moving average. The
Nasdaq Composite crossed over it yesterday in a major way. The composite also broke
through resistance at the 1350 level, which was our short term resistance line. The
two major rallies (Thursday and Monday) were also made on much higher volume. This is
an indication that there are plenty of interested buyers who could be able to sustain
a rally, whether or not the market deserves it. The most interesting occurrence was
what sparked Thursday's rally versus what sparked Monday's rally. We went higher on
Thursday because it seemed we were NOT immediately going to war, and opting for
further diplomacy. We rallied on Monday because it seemed we were going to war and
circumventing diplomacy. In other words, investors were so ripe to make a rally, they
would end up creating two rallies for two completely opposite reasons. It forces one
to question if there was any scenario that could have actually driven the market
lower. That's bullish.
What looks bad: Stocks went higher in the midst of a bear market. In fact they went
so high so fast, many technical indicators are now saying that the markets are
overbought and a reversal can be expected. It's also problematic that they went
higher when nothing about our economy or companies fundamentally changed over the
last five days. Stocks moved completely for emotional (and news-based) reasons.
Unfortunately, as news and emotions change, so too can the direction of the market.
Additionally, although we are again approaching the 200 day line, the Nasdaq
composite has done this twice before in recent months. Each time, it hovered near
that level for a few days, and eventually pulled back.
NASDAQ COMPOSITE - DAILY
Bottom line: It's pretty apparent we're skeptics here. This is not to say that this
rally isn't for real, because it may be. Our warning is simply to not be surprised if
this fragile balloon pops soon. Until then, the prudent action is to follow the trend
until it reverses, but be ready for a quick exit. We also advise to not speculate on
how the markets will react if particular events happen. The reality is that taking a
position based on one of these "if" events is the same as a coin toss - you just
can't predict the future. This is why it's important now more than ever to keep your
emotions in check and keep your head intact.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1365 1420
S&P 500 845 880
Dow Industrials 8030 8250
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
#forex4u - chat forex MIRC
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