Sunday, November 14, 2010

Top40 - end of the day recap for week ending on November 14th


In this week’s update I will take a look at some important end of the day levels and ways to play them.

Last week was more or less sideways week with candles that showed indecisions. There are many reasons for that as numerous traders did not believe in this break out and were not ready to participate in it. But, as we all know, market does what it wants and it doesn’t care what traders think about the market. I believe that the most of them who missed this move are now expecting pullback, so no money is getting into market.

Top40 chart is showing us that market is trending very nicely from the low which was set in late August. Since then market added almost 5000 points and all of that in almost straight line. Close on Friday at 28253 was the highest close on Top40 from July 1st, 2008. Problem that Top40 is experiencing now is trend line connecting last two tops with current market top. It was tested few times this week and market had difficulties to break above it. Trend line is almost parallel with major trend line that started in early 2009 and all in all we have very nice channel.

Small channel that developed from low in August nicely determines current uptrend, with market spending most of the time next to top line. It is easy to see that 10 and 20 exponential moving averages are working as nice supports with 20 ema being tested only once over last 2 months. Oscillators on the top are overbought, but that by itself does not mean market shall collapse. In strong trends oscillators tend to stay overbought.

So, all in all, Top40 is in nice strong uptrend and so far there are no indications change will come soon.

If you are riding this trend - good for you and enjoy while it lasts. However, if you have missed it, don’t try to short it because there are good chances that you are going to lose money. Rather try to find nice pullback to hop onto it with tight stop loss.

Levels to watch are 20 exponential moving average and bottom of the channel - both in 27500 region currently. If Top40 closes bellow those two, one should consider closing long, or if we come close and test them one should add to long position with tight stop loss again.

My personal opinion is that we are not going to collapse 10-20% from here, more likely we are going to continue going up, with small pullback here.

Trade with trend!

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