Why? Where? When?
From a technical stand point to put it simply stock markets such as the Dow Jones crashed last week. Numerous rumours have consisted of many justifications as to WHY prices of stock markets simply dived but make no mistake the price is always final!
WHERE you see you're trading screens and then see the Dow Jones plunge by 1000 odd points reflected with an intra-day loss of 9.2%, this technically alone is enough to state that the market simply crashed! Regardless of a recovery from the lows in which the Dow only closed 3.2% down you cannot hide the fact that markets were involved in a 'flash crash'.
We at tradingmarketsignals.com believed a major 'buy' low would be in place on Thursday and this is all after we stated that the Dow would hit a crucial target level of 11250 after which the markets would start a move south.
On Friday, we informed our members to simply 'long' the markets as the v-shape recovery was under way. However, if markets just crashed then surely why expect a bounce? To put it simply after stock market crash's probabilities highly favour bounces from a contrarian perspective as fear, high volatility and risk all tie in well to counter trade the trend.
WHEN the markets crashed many disguised the events covering them up by erroneous trading but you can simply take the action seen on May the 6th as a pure preview of what's to come soon.
Yes we've had a great recovery under way from the lows that were made at the height of the credit crunch. However, this recovery will halt as before the credit crunch problems affected large multi-national corporations but now the significance of such issues are heightened immensely within nations such as Greece and many others at high risk in which the recovery in prices can only be labelled as a 'dead cat bounce,' from a technical standpoint.
The crash has been covered up as if it didn't occur in which prices are now taking us into a v - shape recovery. Will we get 11,000 again or close enough to it? Do we head higher above the mark to new highs for 2010 in which many could be sucked into talks involving a total recovery in which topics of 14,000 Dow may come alive??
A recovery in v-shape fashion is underway, although further price action will need to confirm this, in which a close above Monday's rally highs would be important.
The chart below represents the Dow Jones in which each bar is represents monthly action.
The Dow Jones Monthly chart above shows that the 'Flash Crash' move below 10000 which has saved as the upward trend denoted by the orange line is intact. The purple line is the possibility of where this bounce could lead to. We feel that declines along with current prices are a buy. Furthermore the likelihood of this will depend on price action but easily the markets can rally past 11000 and even 11250 which may turn out to be the biggest trap ever in the US Stock markets only to Crash in frantic style once again in which ultimately prices will reach 6000 for the Dow Jones.
For now we will watch the blue line as that is the line in the sand. Hold not fold and markets will rally back, fold not hold and the markets will surely head back to 2008 and early 2009 lows.
However at tradingmarketsignals.com we act on price action for the Dow Jones, FTSE100, GBP.USD, EUR.USD & Crude Oil. All views are secondary as the price is always right.
The chart below is a four hour chart of the Dow Jones;
This timeframe is king for short term direction and here's why; Monday's highs weren't just a random number on the Dow Jones. You can stretch back over a month and see the market was supported at the very level, of course simplistically old support turns into resistance and here we see the market stall at this support/resistance area marked by the round blue circles. Once again the market stalls on Tuesday's action at the very region. Until the area can be conquered the market would run the risk of heading lower. The upward v-shape rally is marked by the green line in which we could travel back to 11,000 BUT on our journey we can fail right at today's highs, along with a few other failure regions marked by the green circles shown by the two green circles at the yellow line intersect and the purple line. The fantastic one to hit would be the purple line but it's too early to say. All support is market by the dark red lines, in which if the dark red grid line box was to fold the market would dive. The gap up and fill area is marked by the orange lines. If we zoom straight up and don't fill now then we might not have a healthy up run in which the market will always be prone to fill that mark! We would like the market to head higher at least to the yellow line and then to the magical purple line in which we could approach a zone where we could fail and if we went to new highs we would still fail on the long run!
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Hope you have a profitable week and always remember: "Unbiased Price Action Technical Analysis works!"
