As we have been saying in a few recent TrendWatches, the war rally from last week and
the week before was not built to last. It's not that it could never strengthen - it's
just that there are too many possibilities that could scare investors out of the
market. That harsh reality came into play yesterday after we took major losses. So
what next?
Judging from our reader's questions, plenty of people aren't sure what's next. Do we
continue lower, or was yesterday just a blip in the uptrend? When the picture is not
clear, as always, it pays to take a step back and refocus on the markets without the
burden of emotion (easier said than done, right now). In this instance, let's revisit
the support and resistance lines that are built into key moving average lines.
Only time will say for sure where we go next, but the resistance we often see at the
200 day line is going to be a key signal. On Friday, blue chip indexes (the Dow and
the S&P 100) crossed above their 200 day moving average lines. Yesterday, we saw the
strength of that resistance as both of the indexes fell back below their 200 day
lines. Going forward, this is one major steps toward at least some sort of
intermediate-term market strength. Currently for the S&P 100, that 200 day line
acting as resistance is right around 450. With Monday's close at 439.67, we have a
little work cut out for us if we're going to do that. Don't be frustrated if it takes
a few days to cross above it - this is a rough market. On top of that, don't assume
that seeing one close above the 200 day line constitutes 'crossing above key
resistance'. It does not. Last Friday's and Monday's market movement is proof of
that. We'll need to see a few consecutive closes above the 200 day moving average to
confirm any upturn. (On a side note, even a move higher today could still leave us
under the 200 day line - we need about 10 points at least)
What about the downside? Yes, there's that possibility too. Recently the 10 and 20
day exponential moving averages have been important indicators, but the 10 day EMA
has been the more critical of the two. We actually found support at, or even a little
above, the 10 day EMAs for most of the indexes yesterday (the Nasdaq Composite was
the exception). Finding continued support at this uptrending 10 day line will be key
over the next few days. Falling back under support, though, may be a sign of a major
breakdown. Like the 200 day line, don't jump the gun, but do be ready to make quick
exits. For the S&P 100, the 10 day exponential moving average acting as support is
near 436. With yesterday's close at 439.67, this is our immediate concern.
S&P 100 - DAILY
Given the current geo-political situation and military action, I know to say 'don't
get emotional' is asking the impossible. But it is still possible to focus logically
on what the market is doing, and act on those signals, if those signals are clear.
Don't forget that taking no action can also be a wise choice. If there are no clear
signals, or if there is some sort of catalyst built into the war in Iraq, there's
nothing wrong with doing nothing. That risk control is an important part of trading
too.
KEY SUPPORT AND RESISTANCE LEVELS
SUPPORT RESISTANCE
Nasdaq Composite 1350 1390
S&P 500 850 880
Dow Industrials 8115 8315
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!
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