Saturday, July 10, 2010

Index Trading

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It look like my bullish points highlighted last week (see my "Technical Analysis" post on July 5, 2010) have been paid off. In that post I wrote "Taking into account that the DJI and many other indexes are at the bottom of the historically defined longer-term side-way corridor (see charts in my previous "DJI" post) I would assume that we may see a bounce up. At this moment, I would not try to guess whether it could be just a small bounce or a strong recovery toward April's highs." If on Tuesday July 6, 2010 there could be some skeptical thoughts about my bullish points, then, I think, the last three days of the strong rally up have confirmed that the indexes were oversold indeed and that historically defined long-term side-way corridor is still "in charge".

As I mentioned before, I will not try to guess how far the indexes (Nasdaq 100, S&P 500 and DJI) may go up. They may go all the way to the highs seen in April 2010, they may go to the resistance we had in the middle of June 2010 or they may advance just a few points up and then started to drop. I know, this may sounds a little bit annoying and some of the readers would expect rather to get straightforward answer. To those readers (traders) I may only say "I am sorry, I do not do it". I watch stock market (indexes and ETFs) on daily basis from 9:30 until 16:00 EST. For me, the stock market is an alive entity that is in the constant change. Today it strongly bullish and tomorrow it could be strongly bearish and the day after tomorrow it could be strongly bullish again.

So far, the majority technical indicators are bullish by suggest the good odds of the further recovery. I like that the volatility goes down, which mean more stable trading. I like the high volume at the beginning of the recovery on June 7, 2010, which I interpret as a buying action of institutional traders. I like that the market bounced from the bottom line of the longer-term side-way corridor (see charts in my "DJI" post). In addition we are in the beginning of the "Summer Vacations" period when we may expect low trading volume and more stable trading which is usually favors up-move. In summary I would say that I see number of factors that favor further up-move. Yet, I would still recommend monitoring charts for any the changes in the sentiment. As a rule up-move does not ends suddenly - in majority cases we may see couple of trading session of side-way move at resistance.

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