Exposing Ideas to the Envelope of Serendipity

Contact moo at: bluechipbulldog@gmail.com

Monday, May 21, 2012

Confluence Support Levels Point to Bounce

There looks to  be a key point of inflection near 128-129 area for SPY. 

  1. First, we have the current supply shock now equal in magnitude to that  occurring in late Nov 2011.
  2. Second, we have the 200 simple moving average less than a point below Friday's low on a closing basis.
  3. Third, from the Oct 2011 low of 107.43 to the Apr high of 142.21, we are very close to the 38.2% fib line at 128.82.

Combine this with mo's observation of the 10 Week NYSE Over Sold P&F Chart, and the hope for an "uptick in these two momentum indicators to perhaps get a counter rally going..." we may be seeing a bounce soon enough. Here are a few other chart indications of a bounce.

Below is the chart I am watching carefully and will be using as a trend guide. The blue, red, and green lines are smoothed 13, 8, and 5 period bars displaced forward by 8, 5, and 3 bars respectively.  What I hope will happen is that we have the opportunity to go short again. Right now the distance between these smas is pronounced and separated from each other (not crisscrossing) and offers an opportunity as it has in the past. I've used it like this:

  • When the red line crosses the blue from above, its time to start a short.
    (see #1  example below) 
  • When the red line crosses the blue from below, its time to start a long.
    (see #4 example below)
  • If the lines are close together, crisscrossing, and/or flattish - DO NOT TRADE. Stats have shown that profitable trends only happen between 15%-30% of the time, so why trade the noise?
  • Cover a short when the red line, from below, crosses the green line.
    (see #2 example below)
  • Close the long when the red line, from above, crosses the green line.
    (see #5 example below)
It will be interesting to see how "good" but usually insignificant news is treated by the market at this point. 

Of course if something drastic happens fundamentally, like government intervention, QE3 or Germany (or the FED) blinks and suddenly decides it likes Greece and wants to give her a few billion dollars, well that would indicate the resumption of the bull perhaps. Let's see... 

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