Strongerhead Weekly Financial Market Analysis 22 Jan 2013

The first three trading days of last week, market did a slight pull back to 1463 on the S&P. Last week, it was mentioned that any pull back would be considered a dip in an uptrend. Hope you guys profited from this dip as prices broke to a higher high by the end of the week. But there’s a saying, what goes up must come down. So is the market coming down soon?

I do not have a crystal ball. It’s all about the analysis and risk management. Here’s something that I picked up from my trading journey:
– When the market is up, long or stands aside. And be wary for sign of weakness among the bulls.
– When the market is down, short or stands aside. And be wary for sign of weakness among the bears.

How do I know the trend is UP or Down. Let’s take a look at the monthly chart for the last 10 years.

On the monthly, I would only look at RSI for sign of weakness, and EMA for confirmation. As you can see, MACDH can sign a divergence for a very long time before a real pull back takes place.

On the RSI area marked by the blue squares, when the market is in that zone, pulls back tend to occur. If the EMA does not cross, just dip in uptrend pull back = buying opportunities.

If EMA crossed (marked by green boxes on the chart), short term down trend = shorting opportunities. Usually, down trends are short term, lasting only a 2 – 6 months (except the outlier in 2008).

Right now, where are we at the right edge of the chart? EMA is UP. RSI says we heading near the top.

On the weekly chart for the last 2 years (refer to the 4 circles in the RSI reading, and 4 circles on the price chart), when RSI reach, especially when it exceed the red horizontal line, and when price is at the top of its envelop, it increases the chance of a pull back.

Right now, where are we at the right edge of the chart? RSI has just touched the red line. Prices are near the top of its envelop.

On the daily chart for the last 6 months, when prices are clearly in an uptrend (marked by green rectangular boxes on the price chart), RSI can stay overbought for a long time (marked by blue rectangular boxes on the RSI reading). One can use that to profit take if you have already long, or average up to add on your long. Or take small position to ride the trend if you’ve not got on board. The bigger opportunities are when RSI is in the oversold zone marked by the blue circles.

Right now, where are we at the right edge of the chart? Near overbought zone, in an obvious uptrend.

Last week, we mentioned that prices of VIX can go lower. Now, VIX (Fear index) price is so low, I need to look back into the last 6 years to find its base.

On the monthly chart, the blue rectangular box could be the new range for the VIX is the bulls continue from strength to strength.

On the weekly chart base on the last 5 years, when RSI hit overbought zone, the price will slowly make its way down hill till RSI reach oversold before another spike (marked by the blue rectangle boxes). Right now, what is RSI showing? RSI spike down to near oversold, instead of a slow grind down.

On the daily, unusual behaviour if you study the last one year price behaviour. Usually, when RSI reach oversold zone from its overbought position, it won’t stay too long in the oversold zone. There’s no real past price behaviour to give me an edge in the analysis. But when prices is down, and MACD histogram moved deep into the red, prices tends to go lower. If that really happens, I believe it is forming a new base as indicated on the monthly chart. Provided the bulls continues to be in charge moving forward.


Long term view (base on monthly chart):
Trend is still UP. Dips without EMA crossed = buying opportunities if it happens.

Mid term view (base on weekly chart):
Watch out for false upside breakout.

Short term view (base on daily chart):
If small dip happens, average up or profit take. So long major trend not jeopardise. And VIX continues to stay low. Take note, US market is closed on Monday.

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NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice.