Stock Market Analysis

Tuesday, June 28, 2011

Market in a "Wedge"

The Dow gained 145 points today in yet another broadbased rally on even lighter volume.

Fundamentals
US market started off positive and never looked back as bargain hunters continued to buy into the possible end of this intermediate correction. Yes, the rally and optimism is unlikely to be fundamentals driven due to the fact that volume is severely lacking. Furthermore, sales data released today were mixed and does not justify such strong reaction. News on the Greek front is nothing deterministic either. As such, I am of the opinion that the market continue to be technical driven today as was yesterday.

Techncials
Like I mentioned to paid subscribers yesterday, this intermediate correction has the potential to end here if the 200MA continues to hold and the Dow gets back up and stay above the declining 30MA. In fact, a better picture of what is going on now can be seen on the S&P500 chart. As you can see in the S&P500 chart below, the market is now in what is known as a "Wedge". A wedge is when prices are stuck in between a rising support and a declining resistance level. In this case, the market is clearly wedged and squeezed between the 200MA and 30MA now. Wedges show that the market must decide at this point to either breakout above the 30MA and reverse into a bull trend or breakout below the 200MA and resume the bear trend. Yes, it indicates a critical reversal point, which in this case, since the 200MA has proven itself to be an extremely strong support since mid-June, odds now tilt slightly in favor of a topside breakout. Yes, this intermediate correction could end here instead of going deeper into the 50WMA. By "ending here", I don't mean a direct V shaped bottom reversal from this point forward. No, intermediate corrections simply don't give up like that. It will most probably go sideways into a short term volatile sideways trend before reversing.

For now, the Dow turns into a short term neutral trend within an intermediate term bear trend within a primary bull trend.
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Chart of Dow Made Using Telechart. Want Your Own Charting Software? Download FREE Now!

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