Monday, August 23, 2010

Top40 - end of the day recap for week ending on August 22nd

It is time again to check what Top40 chart is telling us.

Top40 was in a solid downtrend over last month or so, actually - out of last 18 days only 4 had higher close, while on 14 occasions we had solid red days. Top40 dropped from 25799 on August 2nd to current 23921 (with low of 23770), making it massive 2000 points drop from high to low.

So, let’s first see what patterns and trend lines are telling us: There is massive trend line resistance around 25700 that stopped Top40 twice already this year. That line is drawn from all time high in 2007. Break of that trend line would be very important for bulls, but that is for now out of question. Top40 first has to clear about 2000 points on upside.

On a down side we have trend line support around 23600-23700, just bellow Friday’s levels, and below that value we have crucial support in 23000 range. That support held three times in May, June and early July, as well as it held earlier in February. That same level is neckline for massive head and shoulders pattern that developed over last nine to ten months. Break and conformation below neckline could easily push Top40 down to 19500-20000 zone. So, this is point to watch if you are bear. It looks like range between bulls and bears is getting smaller (it is only 2000 points now), so maybe we could expect some resolution soon.

Indicators look oversold, Stochastic especially, while RSI is not so oversold (around 35 but in current sideways market it dropped below 30 only once). MACD is below 0 line.

Moving averages, which help us to determine long, medium and short-term trends:

• long-term (200sma) - DOWN

• intermediate (89sma) - DOWN

• short-term (10ema) - DOWN

Trade with trend!