Sunday, September 19, 2010

Top40 - end of the day recap for week ending on September 19th


Last few weeks didn’t bring us a lot on the end of the day front. For almost a year now Top40 (J200) is stuck in sideways channel. In October 2009 Top40 broke 22900 and in that stage such break looked like important one. However, J200 rallied quickly to 25500 in early January 2010 and following January market tried four times to break 22900 and four times to break 25500, with one failed break in April this year.

Currently we are trying for the fourth time. Market spent last few days around or just below 25500, with Friday morning which looked like breakout, but market faded away during the day.

There are massive resistance levels around 25500-26000:

First is 61.8% Fibonacci level for the drop from May to November 2008. Many technical guys consider 61.8% level as last resort for bulls or bears and break of that will be final confirmation that trend has changed.

Second resistance is down-sloping trend line that started on all time high in May 2008. It was tested three times already and it still holds tight. So, break of trend line will be another nail in the coffin for the bears.

Third resistance is horizontal line around 26000 that connects last three tops, including the one that was just a bit higher, but to prevent TA purists even Elder says that you should place lines through congestion, not through exact peaks.

J200 is above all moving averages and they paint bullish picture as well. Indicators are in the upper half, with Stochastic being above 80 for few days already. RSI still have space on top to run, but as RSI is momentum indicator it will move when market moves. Last four days J200 hardly moved on end of the day basis, so RSI is stuck around 60. MACD is pointing up and it is above signal line.

Finally, I am here not to predict what market is going to do, my goal is to follow it. If we check previous events and if market repeats what it has done already few times, I would recommend going short here with tight stop loss (break of 26000). There are not too many reasons to be too bullish here, as there were not too many reasons to be too bearish around 29900. And as law of inertia states: ”A body (market) moving on a level surface will continue in the same direction at a constant speed unless disturbed.” So, as far as I’m concerned market will stay in sideways channel between 22900-26000 levels for now. Break will happen, but nobody can tell you when and whether it will be up or down.

For people that are not used to shorting market, I would use famous words from Jesse Livermore: “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting.”

So, stop thinking, sit, relax and wait for the break. There will be enough points to be made after the breakout, so direction of the break should not be guessed, but waited to be seen.

Trade with trend!

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