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Wednesday, August 27, 2008

08/26/2008 Market Recap: Support held, bulls still have chances

There is no significant signal today, so here is a short report.

0.0.1 Simple SPY Trading System.  Small candle after a big candle is a typical consolidation, but the breakout direction is unknown.  On the chart, bulls are on the edge of cliff.  If the market breaks out downward it will be quite bad.  So keep an eye on the support at 126.50, which has to hold.  The trading rule of consolidation is on the chart 8.1.0 Small Body Bar Trading Rule.


Will the support hold tomorrow?  I guess yes.

1.0.4 S&P 500 SPDRs (SPY 15 min), 1.1.A PowerShares QQQ Trust (QQQQ 15 min), 1.2.7 Diamonds (DIA 15 min), 1.3.6 Russell 2000 iShares (IWM 15 min).  On 15-min charts of all major indices there is a common pattern: MACD and RSI positive divergence.  Do you remember that the rebound of market in the morning was predicted according to this pattern yesterday?  The consolidation today has made the positive divergence more significant.  You can take a look what happened after similar kind of positive divergence.  Furthermore, the yellow region is quite encouraging because it should provide good support because of heavy trading volume.


2.3.0 NYSE High-Low Index.  In case the support doesn't hold tomorrow, this indicator is very close to the oversold region.  Note that every time the black line reaches the oversold region marked by the green horizontal line, the pale green line denoted the market will bounce back in the near term, no exception so far.  Therefore, even if the support breaks, it won't be terrible since the market may bounce back in the near term.  On the other hand, by no means I suggest not to cut loss once the support is broken but only doubt the magnitude of selling-off after the broken support.



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