Thursday, July 21, 2011

Stock Market Analysis for 21st July.

Let me start by quoting from my yesterday’s posts.
Yesterday in my 1st article, I wrote:
 it is in the interest of Germany, not out of any love of Greece, that Angela Merkel will find a solution this Thursday. By solution I mean giving some more money and buy some more time. In the mean time, I expect Euro to go up to 1.50 or beyond. 

Sure enough Madam Merkel and Monsieur Sarkozy came out with a Marshall plan for Euro.  Whenever the MSM bring out a story of doom and gloom, we can sit back and relax in the knowledge that they are always and will always be wrong. Their agenda is to sensationalize, not to give the unbiased correct information. It is our job to filter out the noise. For the nth time, news does not move the price, prices move the news.

So now we have Euro galloping up 1.44 and beyond and taking all other risk assets with it. Does it mean the entire problem of Europe has been solved? You must be joking, right? But last time Germany and France came up together with a plan, it lasted for about a month. So give this plan a month or so before the ugly truths come out.

My 2nd article was on silver but I wrote little bit about the market action as follows:
Today’s market action can be considered as a kind of consolidation. SPX was down by less than 1 point. Although I consider that as positive for the bulls, I would have liked it more to the downside. The oscillators are in sweet spot. MACD is in positive territory and McClellan Oscillator is not showing any danger signal.  However the US $ has broken support on the downside. 

I would have been happy with a small correction of 10-15 points to get an entry, but it was not to be.
So what is next?

Let us look at the weekly chart of S&P500.

Although there is one more day left in the week and theoretically SPX can sell off heavily tomorrow, looking at the weekly chart, I think I am seeing a "Bullish Engulfing Candle" pattern.

From Thomas Bulkowski:” The bullish engulfing candlestick is a well-known candle pattern composed of two candle lines. The first one is black and the second is a white one that is taller than the prior black candle, engulfing it or overlapping the black candle’s body. The bullish engulfing candlestick acts as a bullish reversal 63% of the time, which is respectable, ranking 22 where 1 is best out of 103 candle patterns. The high frequency rank (12) means that this is as plentiful as children at a playground.

Unless of course it sells off tomorrow and invalidates the pattern. What are the chances of that happening? Let us look at NYMO for today.  It is still not in a danger zone. The MACD in NYMO is just turning up and histogram is about to get positive.

Euro just got the shot in the arm, so it will go up some more. Debt ceiling talks have not broken down. Sentiments are still not overtly bullish. Earning season has just begun and so far it has been good to better. Yet people are not yet convinced about the upswing. Who can blame them? With so much of negative news and uncertainty, how can market ever go up? But that is the nature of the beast. It does opposite of what is expected of it.

Only thing that can act as dampener is that tomorrow being Friday, brokers may be in a hurry to go to Hampton. But then the heat wave is making outdoor difficult, so they may as well be inside the AC office and buy buy buy! Jokes apart, I think chances are high that SPX will touch the upper band of the Bollinger Band (In Weekly Chart) in the coming week. After all it is only 30 points away.

Same is the situation with Compqx.

As well as DOW.

Also increasing volumes suggest that equities are about to break higher.( Get them get long, then we dump them !).

I think tomorrow will be more of a consolidation day, a range bound day, take my dog to walk kind of day. Some will take profits; Perm Bears will again look for the top and place their short bets, only to be wiped out again. I think on the whole we are in positive territory. So far as I am concerned, I am not shorting the market, nor am I chasing it. If you are long, just hang on tight.

But then, what do I know. After all it’s all speculation about speculation.