8/7 Market Recap
Posted by jon on
Spy of the week:
Five consecutive positive days, and third week in a row that the market is up, what a raleigh! It’s amazing how sentiment can shift so fast. 3 weeks ago, the market experienced a sharp decline, big red bars appeared on the chart, breaking the persistent uptrend channel. Sounds of pessimism echoed through newspapers and blogs but here we are, 3 weeks later, we are back at all time highs.
10 year worth of SPY chart
As a measure of the strength of that recent move comes the following Heat Map which shows that not as usual, the whole sectors of the market have gained some ground, and this is not an upward move that can be associated to only a few sectors:
On the way up we sliced through the 162.00 prior resistance level, following a straight line to May high resistance point of 168.00.
Although the recent upmove was sharp and a retracement is likely to occur, we are undoubtedly on an uptrend, and every retracement is an opportunity to look for cheap stocks to buy.
On the daily time frame Laguerre Filter is flattening, which is not indicating a clear direction, but we have the most important indicator on the market – Price action – that tells us that buyers are way stronger than sellers and therefore look for buying opportunities.
A series of higher highs and higher lows indicating a clear uptrend.
As said earlier, the current price level is staying on a resistance level (167.00), and regarding the closest support level we have the 165 through 166 range:
If you have followed our posts lately, you would know that we closely follow stocks that have experienced big upward or downward moves.
This scenario beings to the front a severe imbalance between buyers and sellers which is most likely to continue the day after this occurrence. What is left for us, the traders, it to wait for a decent opportunity to get into the newly formed trend. We like to use our proprietary tool for identifying Long and Short entries called Darvas Box.
This strategy plots two lines (Which form a “box”) with a price label attached indicating the price level of the line.If both lines are green, one should go Long above the higher line. If both lines are red, one should go short below the lower line. Place stop behind the other line of the box, that’s it! Now let’s see a few examples from last week that illustrate this idea
Rockwell Medical – (RMTI) had a big gap up on the 7/11, accompanied with a volume spike. Something must go on there, some kind of good news, an interesting acquisition, but whatever the reason may be the evidence is clear: For now, there’s an impressive buy orders which push the price up, which we will call the first wave. On the next day usually comes the second wave of buyers which heard the news after the close of the markets (Maybe on newspapers or regular radio broadcasts), which want also a piece of the cake. This is where we get in. We look for a certain consolidation in price, a range to be formed and the go long above the top range level:
Sometimes, on the second day after the big move, the second wave comes too early which doesn’t let us get into the stock for a decent price, this is something that should be taken into account…
Sometimes, there is a signal, but the wave didn’t follow:
And for the sake of showing that it happens not only for up gaps but also for red bars also:
Commodities VS Commodities:
We continue to monitor the previous break of Oil (USO). Last time we were concerned that the break upwards will sustain for a short moment and come back to where it came from, but here we are witnessing the third consecutive green week.
It is safe to say we are in a bullish environment for oil and gas, and therefore it is a good spot to look for Long entry points. We will continue to follow and look for trades.
As for Gold (GLD), after the previous month’s slump, the price has recovered a little but still, our sentiment stays to the down side.
In order to reconsider our short term bearish bias for gold, the price should at least break the 130.00 resistance level in a convincing manner with significant volume.
Notice how the recent down move was accompanied with high volume, as opposed to last week’s recovery with very low volume.
Be advised that this week has a bunch of important economic numbers that could agitate the market either way. The most important numbers are Retail Sales at 08:30 and Business inventories at 10:00 AM on the 15th (Monday), and the next day (Thursday) the Consumer Price Index (CPI) will be published at 08:30 AM.
All these numbers have an actual number and a forecast. This time the difference between the actual numbers and forecasts are quite large so a small market shake is planned.
On the currency market we had a quiet week with not much of a change. EURUSD still flirts with the 1.3000 level, with a price action that resembles the rubber band effect. This level is where most of the trading occurred for the year of 2013 and as such is a very important level.
For the time being, the price is “safe” between the range it formed for the last year (The blue box). We will look for any interesting development.
One currency that is still traumatized from a recent technical event is the Australian dollar (AUDUSD). Since “The event” – which is the break of the 1.0000 price level, its price is drifting lower and lower…
The AUD has broke another important support level of 0.94000 and all we can say is that every up move from here, looks like a very good place to enter a Short position…
The Pound is still struggling with the extremely important 1.50000 level.
Earlier this week there was a drama going on as the price dipped just below the 3 year low of 1.48000 but then quickly recovered and now stands a few points above 1.5000.
This Dip-And-Back is a good sign for the Long positioned traders as there’s a thick buying layer at this support level. We can further add that the chances of the price continuing the upward move are far better than the chances to dip again.
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