Second week of trading in 2011 was very nice, especially sessions on Tuesday and Wednesday. After four days of weakness market bounced nicely and on Wednesday J200 broke year to date high, making one more on Thursday. Finally, on Friday J200 showed weakness in the first part of the day, but bounced strongly towards the end of the day, with ALSI futures making fresh year to date high after cash market closed.
Currently J200 is trading above all major moving averages - 10, 20 and 50 and, so far, trend is very much intact. Close on Friday was at 29226 and that is 2167 points or 7.4% away from all time high at 31393. I’m of the firm belief that we are going to see new all time high and most probably that is going to happen sooner rather than later, as too much free money around the world is looking for home and emerging markets are favourite number 1.
Having said in mind, I just want to point that chart is showing some serious negative divergences on RSI and MACD. Negative divergences are not selling signal by itself, but triple negative (or positive) divergence could be a warning signal. One trend line is around 28500 together with 50 ema and the second one is way down around 25000. If/when those negative divergences play out market will correct very sharply and strongly. If one holds long term position, good place to close is close below 50 ema, but be ready to jump in long again quickly. Dow theory short will be close below 28194.
At the end, just want to conclude by adding that I don’t think this bull market is in any danger. For as long as interest rates in major countries are at zero or close to it, that is not going to change.
Trade with trend!