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Friday, July 15, 2011

Friday Weekly Charts

 Today is a "what if" scenario day for me: what if yesterday's low was "the bottom"? While I have no real reason to assume it is (and actually kind of doubt it), there is a decent case to be made that this may be the beginning of a decent up move. Volume was pretty good today, although option expiration enhanced that. The 50dma, while broke yesterday, broke again today from the bottom, and may now provide some support. The main reason I think the market may move up: earnings season. During the last few, the market has moved relentlessly up during the heart of earnings season, only to slow down and pull back after the bulk of it was over. there is no guarantee that will happen again, but until it changes the probability is there. Technically, we are again in day 1 of a rally attempt, but again, July and August historially have a low percentage of successful follow through days.
The most notable feature of the weekly chart is the dreaded head and shoulders pattern developing. This one has a better chance of working than the last two, because, for one, the volume pattern is more typical of a head and shoulders top than the last two, and for another, you don't hear the pundits on CNBC talking about this one. However, until the neckline around 1250 is broken, it's just an academic exercise.

Also notable in the weekly charts is the strong upward momentum indicators. Stochastics barely show a down week this week, and MACD, while not outrageously bullish, are also moving up. The Nasdaq had a relatively strong week, and may well be just in a slight pullback after a very sharp move up.

The Dow industrials have an up sloping neckline, which technically means it will be easier for it to break, but I would be more concerned about a potential bear trap if this one breaks and the others don't. This also has plenty of upward momentum, and if you trade in the direction of weekly stochastics, this week presented a buying opportunity.

I'm goint to mix it up this week with a couple of commodity charts, the first being West Texas Intermediate, also known as crude oil. This is still trading at a substantial discount to Brent crude, but for or purposes that is not terribly important. We are more concerned about the trend, which, with a correction that appears to be just about over, is up. Stochastic are now flashing a buy signal here, and even if this doesn;t get to a new high, there is plenty of room to made a hefty profit.

Gold reminds me of the kid in the story " the Emperor's New Clothes", who is the only one who is not afraid to say the Emperor is naked. In this case the Emperor is the world's central banks, and gold is telling them they aren't wearing any clothes. For nearly 3 years it has been in a relentless up trend, outperforming every major asset class, and is now at a new high, despite the best efforts of the mainstream media to tell us all how bad an investment it is. Nice call, guys.

I will have the new highs update shortly.

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