7/29 Market Recap.

Spy of the week.

Hello traders! If when you will read the next few lines you will feel a sense of De-Ja-Vous then you are right, the market has closed another week of up trending prices. This move is really quite astounding, such a large advance when the market is so extended is something quite rare, an event that no one has predicted to turn that way.

Of course, it is natural to look for corrections in the market for the purpose of getting in at a lower price but it seems that the market just does not adhere to the traders “logic” of how prices should move. One lesson though, ALWAYS trade what you see, the price is the king, meaning that if all indices tell you that the market is in an uptrend then look for Longs. Don’t “think” what is a logical move that “should” happen, the market just does not work like that.

Technically speaking, there is nothing much to say about this chart, right now we are in a “free space” where there is no prior resistance level which the market could bounce off of. What we are doing currently is simply drill down to a lower time frame (5-10-20 minutes) and work with the newly formed resistance levels. As always, KISS (Keep It Simple Stupid!), look for the dead simple pattern of higher highs and higher lows for a bullish environment, and a series of lower highs and lower lows for a bearish environment:

SPY price action over the week – 10 minutes chart

 

On the previous blog post we applied the above simple rules along with our proprietary indicators to get Bullish and Bearish sentiment on a couple of stocks, Facebook (FB) and Coca-Cola company. Reading and analysing these charts wasn’t such a complicated task, we like our analysis simple, easy to understand and effective, so let’s see what we had last week:

FB:

Facebook was in a big up move 2 weeks ago (Opened with a 30% jump), accompanied with an exceptional volume. This immediately showed that for the upcoming short term there is a lot of interest in buying the stock rather than selling it.

After realizing we are in an up trend, we plotted our proprietary indicator named Darvas Box. This indicator showed us a level where we should go long above it, as well as a line that indicates the Stop Loss. The price for getting Long was $34.88 and the Stop Loss we chose was a little different. Since the current Stop Loss line was too far from the entry price, we chose to put the Stop Loss below the recent low, which was at the time at $34, 88 cent risk. Let’s see what happened since that call:

 

Notice how the price struggles with that $34.88 level, and when it finally breaks, it shoots up, as the presence of sellers in this area is scarce.

As of today, the gain is about $3, and for an $0.88 cents risk it can be considered a nice Risk/Reward ratio. As you can see, the analysis approach stays as simple as it can get.

KO:

Coca-Cola is exactly the same story, but on the flip side. On the daily time frame the chart looked quite bad, a lot of big red candles on high volume, as the market goes higher and higher it seems like the stock struggles to stay on its current level and not fall off the cliff…Although the pattern of lower lows was not that obvious, the overall picture of the chart looked dim.

As a result, we chose KO to be our Bearish sentiment candidate, and as long as past week action, we were right.

We didn’t get clear level where we can go Short, but on the other hand it was crystal clear that this stock is going nowhere but down:

 

Economic Calendar:

As predicted on the previous post, the market has experienced a mini turbulence due to economic data and FED propos. As a rule of thumb, before any trading day, always look for special announcements that are due that day. It is very hard to get a good measure of what will the numbers be, and even if you can, you would be surprised at how the market can interpret these numbers different that you.

As for this week, we have 3 important numbers:

Trade Balance – Aug 6 @8:30 AM

Consumer Credit – Aug 7 @3:00 PM

Wholesale Inventories – Aug 9 @10:00 AM

AUD/USD:

As stated before, this currency is looking very bad, and the sentiment has not changed whatsoever. We are still Bearish on this instrument as long as we see lower highs and lower lows and a declining Laguerre filter. In order for that currency to make us change our mind it will have to go over a long phase of price stabilization, a scenario that will take long time to form.

Next important support level comes at 0.84 area.