The State of the Trend

By: George Krum | Sat, May 19, 2012
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Last week's suggestion that traders should be selling rallies proved to be the right strategy all week long. The SPX lost 58 points and market internals deteriorated even further. The daily and weekly trend remains down, while the monthly trend is flat.

But just as it is true that markets don't go up forever, they don't fall forever either. At some point a sharp corrective rally is imminent, and it could come at any time now. The reasons for this are manyfold, and below we'll focus on a few of them.

The SPX daily declined to the 50% Fib retracement level which, according to Gann among others, is the retracement zone where you would expect strong support to come into play:

Source: OT Fibonacci app

At the same time, the SPX weekly is closing in on the 32% Fib retracement level:

Taken together, this means that there is a narrow but strong support band forming at the 1289.5 - 1290.5 level.

In addition, the Trend Oscillator is fast approaching the oversold zone, usually associated with reversals:

Source: OT Trend

And last, but not least, the SPX index is nearing channel support, from where one would expect a tradeable bounce to occur:

Source: OddsTrader

In summary, the SPX registered a significant drop last week and has reached oversold technical levels which are usually associated with counter-trend moves. Watch for a drop below 1289 - 1290 as a sign that the downtrend is continuing, while a rally above Friday's high at 1312 will be the first indication that the worst may be over for now.



George Krum

Author: George Krum

George Krum

George Krum is the author of the "CIT Dates" blog, and the following apps:

OddsTrader - combines the power of Hurst Channels with proper risk and position size management. For a web version see OT Signals below.

Gann 9 - the only financial app that allows users to effortlessly apply the legendary W.D. Gann's tools and methods for trading (including the Square of 9).

OT Trend - helps you quantify and forecast the seemingly random ebb and flow of stock, index or mutual fund movement.

OT Fibonacci - automates the process of applying Fibonacci numbers, ratios and time series to any security.

OT Seasonal - allows you to perform seasonal analysis on practically any security from around the world, and to build long-term forecasts and models.

OT Pairs - pairs trading, one of the most successful hedge fund trading strategies, is now available on your smart phone.

OT Pivots - combines the power of pivot lines with cycles to provide you with concise technical analysis and powerful trading signals.

OT Signals - a web app accessible from any browser, tablet or pc. It gives buy/sell/hold ratings for any instrument from around the world, and defines the trend and support/resistance levels.

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