I failed to complete my trading homework last week due to mini home renovation work and deadline pressure from my other workload. As such, I shouldn’t be trading last week. But I violated my own rules and resulted in putting in a shabby trade. As a result, there’s no way I am missing out on another week of trading homework.
If you remember my analysis on 4 Nov and 11 Nov, whenever Dow is lagging S&P, usually, it means market has more room to go until Dow and S&P is in sync again. As of now, they are kind of in sync. Does that mean market has reached its peak, ready for correction? Yes it does, but Dow has some more room to go before it reaches very overbought zone like S&P base on RSI. And for it to correct, weekly chart must show signs of weakness 1st.
On the weekly, both Dow and S&P, resistance level has turned support as they both broke out of that level. Both as at overbought territory as well, but based on past history, both are capable of pushing further into the overbought zone. Based on MACDH, 3 times in last 5 years signal trend would go higher when MACDH is at such level. 2 times in last 5 years signal a dip is near, but after which, it would still trend higher. Which one is likely to happen, let’s take a look at daily chart for clues.
On the daily, after the dip has occurred, bulls quickly got back to work and pushed prices higher. still have some room to go, but based on MACDH, potential weakness forming. Power of bulls not matching up with price movement to the upside. Is that a sign of greed losing steam? Let’s take a look at the fear indicator for more clues.
VIX (Fear index) weekly is sitting on the fence of support line.
On 4 Nov trading homework, I suspected VIX (Fear index) daily to repeat Jul – Aug 2013 pattern (as indicated by the circle in blue). So far, the pattern is replicating the formation. It is really does, a bottoming pattern of VIX is forming. Which means bulls might have a few more weeks to run before VIX complete this base. But do not be surprise by a fight from the bears since i saw a potential divergence from MACDH outlook. Let’s continue to monitor this pattern.
Summary:
Long term (monthly chart):
UP (overbought, with some room to go)
Mid term (weekly chart):
UP (overbought, with some room to go)
Short term (daily chart):
UP (overbought, with some room to go)
Stay long, or stand aside. Dip can be opportunity to add long positions. But small lot size please and tighter stops as the market trend is tiring. Especially when VIX is low and price is high, risk to reward is getting less attractive.
As yearend is nearing, with the market breaking new grounds refusing to give way. For that reason, I am have to be a bull but a cautious one. No reason to fight the trend until more weaknesses is showing.
Cheers
Strongerhead ways to becoming a better trader
NOTE: All information provided “as is” for informational purposes only, not intended for trading purposes or advice.
