We've had a fairly exciting week that ended on Aug 1, the first trading day of the month.
The finance sector, which has been the biggest mover of the market for a while now, ended with a modest gain. Hardly surprising given the kind of support they are continuing to be getting from the government (see my earlier posting regarding the topic in question).
Oil ride seemed bumpy for the week, right after a nice trend down from its peak.
Then there was a heap of economic data that confuses at best.
After all those roller coaster rides through the week, the week ended surprisingly flat - S&P rose 0.2%, and DOW went down by 0.4%.
So there you go, just another week in a trader's life.
Looking forward, the first thing I want to do is clear my head in the midst of all the noises , look for patterns, and get a sense of what to expect in the week to come.
Been following the news and nothing out of this world has caught my attention yet. The market is still in a jumble (that seems to have become a CONSTANT these days...).
So I'm going to turn to my charts now.
I'll like to start with my monthly chart for DOW, since I've not taken a look at it for a while now.
1) Monthly
Bullish Hidden Divergence (lower low in MACD not matched by lower low in DOW), which tells me that uptrend since at least Oct 2002, if not 1900, will resume after the current correction.
Doji tells me that bears are taking a break.
We've hit 50% Fib retracement level. Price could go anywhere from here. I'm mildly bullish at this point, and you can find my reasons for being bullish - at least for this week - as you read on.
2) Weekly
Bullish Divergence for week of July 21 and July 28
Volume shows that selling pressure is at least wanning - a temporary relief for the bulls after seeing price dropping accompanied by heavy volume since May .
I would be concerned though with what seems like an evening star and bearish engulfing patterns(in grey tetragons) that formed at the top of the trend and as price was coming down. Seems to me that there's a strong resistance at the level DOW reached in Oct 07. Rallies after that were constantly being impeded by strong bearish candlestick patterns as bulls attempted to push price back up to the high reached in Oct 07.
3) Daily
Bearish wedge. Suggest a high probability that price will tank at some point after DOW has inched up to a certain level (where exactly I don't know - at least not on daily chart).
The declining volume since mid july suggest that the rally is not supported by new players coming in but simply bears taking profit or short covering (hardly surprising since SOME PEOPLE WHO REALLY HAVE GOOD REASON TO GO SHORT CAN SHORT NO MORE BECAUSE THEIR HANDS ARE TIED).
Anyways, I'm going to be a broken record and reiterate that bears are not going to be of serious threat at least up til mid Aug.
4) OIL
Let's take a look at the daily chart for Brent Crude futures
Seems to me that oil is consolidating after the steep fall off its top.
The box-range trading pattern is consistent with the prevailing sentiment. It's just nonplus all over - on one hand, we have rising tension between Iran and Israel, which is bullish for oil; on the other, confusing economic data and the ailing housing and banking sector (the health of which underpins the growth of the country) are holding bulls back (In fact there's been reports of substantial shorting of oil contracts based on expectation that the gloomy economy is going to impact on demand.
5) I mentioned the following in my posting on Jul 31:
Price moving towards Fib 61.8 - countertrend and corrections typically end at Fib retracement level of 61.8%. So, unless DOW goes up beyond around 12,250 (the 61.8% Fib retracement level of the fall from May to July) and stay up there, I'm going to continue to see the current rally as just a mishmash of bears' profit taking and opportunists jumping in to ride on the current rally in the financial sector (which, as I mentioned, would last only for as long as the government is willing to continue to bail out irresponsible companies)
With the expiry in mid Aug of such initiatives to prop them up e.g SEC's temporary restriction on naked short selling on financial institutions, I'm expecting their happy ride to be over by then.
My Thoughts on What to Expect for this week
Based on my points 1) to 5) above, and in the absence of any surprise from OIL and on the political front, I'm bullish for the week of Aug 04, and mildly bullish for the month of Aug.
Economic Data for today
Not a whole lot for this week. For today, watch out for the following:
08:30 Personal Income for Jun Consensus -0.1% Previous 1.9%
08:30 Personal Spending for Jun Consensus 0.5% Previous 0.8%
10:00 Factory Orders for Jun Consensus 0.7% Previous 0.6%
No comments:
Post a Comment