Stock Market Analysis

Monday, May 17, 2010

These Two Weeks... Normal?

The Dow ended another turbulent week last week as experts and academics continue to argue over the real reason for the flash crash (as it has come to be known) of 6 May. Well, as a trader, the reason is not important to me at all neither am I interested in wasting time finding out and debating over this issue. My only and real concern is how to trade and profit from what has happened and what will happen. Why it happens is the job of academics, not traders.

I looked at the weekly chart for the Dow and saw an interesting pattern. As crazy as the market condition seemed the past 2 weeks, a look at the weekly charts revealed that the Dow did nothing more than the regular pullback down to the weekly 30MA which it does all the time in a healthy bull trend. The only difference is that while it took a couple of weeks to hit bottom before like back in February, it took only one day this time. Efficient market hypothesis? Well, it would be scary if markets no longer trend but jump instantly from point to point!

Looking at the weekly chart of the Dow reveals that it reached a short term ceiling at the weekly 200MA line, which is historically a strong resistance level, and then retreated back to the weekly 30MA for support, which looks totally normal. So far, the 30MA support seems to be holding up well but the 200MA does quite go down lightly. Historically, it took weeks to break it everytime. Now, what if the Dow breaks the 30MA support downwards? If it does, the next support level would be at the weekly 50MA level along which we could nimbly make a quick profit downwards before reassessing if it is going to go down further.

For now, the Dow turns a short term neutral trend (within an extremely wide and volatile price channel), intermediate bull trend and a primary bull trend.

Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!


Post a Comment

Links to this post:

Create a Link

<< Home