Luna $ Ticks

August 3, 2008

Wash and Rinse

Filed under: Trading SPX SPY — moontrader @ 7:26 pm

We might see a rally in the next couple of trading sessions and here’s why.

The chart above shows how important tops and bottoms throughout this year perfectly align in the period we are currently in which started with July 15th’s bottom. Notice how accurate, with tolerance of +/- 1 day, the bottoms and tops can be projected. According to this projection, the next top might occur between 08/04 and 08/05. However, if the F11 top is ignored, the top on 07/30 would be in agreement and inside the tolerance with the F9, F7 and F5 series. The following chart, though, supports the former scenario.

First of all, notice how the MACD held the whole downtrend since 05/19, giving a strong buy signal with a steep cross of the fast line over the slow one around 07/15. We’re still in negative territory but very close to positive. The declines in the last trading sessions weren’t enough to change this short term trend.

More important however, are the 3 DMA’s (3×3 blue, 7×5 green, 25×5 brown). In the detail below, notice how the DMA 3×3 contained the whole decline from 06/05. SPY closed above it only twice, on the 16th and 17th of June, after which everytime it touched it a sharp decline would follow.

Now the case for a short term uptrend. After almost two months of declines, the SPY “kissed” the DMA 25×5 on July 23rd. This by itself could be a sign of a short term trend reversal. A couple of days later, it finally managed to close above it. The weakness that followed can be seen as normal. Considering the bad news of the last days, the market reacted quite well with small losses, which can be seen as a sign of strength. On August 1st, SPY closed at 126.16, which is below DMA 25×5 (126.73), well above DMA 3×3 (125.13) and almost on target DMA 7×5 (126.26). If we open on Monday around 126.73, which we’re not far, the market will rally very strong, probably to the 132/133 levels in a couple of days.

This might be the “wash-and-rinse” that usually precede the last, and sharpest, leg down.

ps: I apologize for my poor english.


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