Tuesday, May 5, 2009

Waiting Again

Here we are waiting for the market to decide which direction it wants to move after the SP500 broke above the 875 level. Yesterday, the first session after the SP500 closed above the 875 level, the market displayed strengths on the opening hour and the last trading hour. Then today, the market really did not do much other than give back a small portion of yesterday’s gains. Even that was not very eventful, as the closing minutes was near, the market rallied back to recoup majority of the trading session losses.

Looking at the candlestick chart for the DJIA, SP500, and the Nasdaq 100, one can see today’s price actions from all three indices formed a doji type of candle. This type of candle appears when there is indecision amongst the buyers and the sellers (bulls & bears), and it is a prelude to a new trend, may it be up or down. Rather than try to guess which way the market will be headed, I will take the sideline and wait for the market to make its move then trade accordingly. There is lot of jittered bulls feeling the market is extended and simply looking for an excuse to take profits. Then there are those that felt the SP500 closed above 875 and into the 900 level shows the market have more upside to go. Like any good student of the market, I have mapped out the scenario for the upside and the downside. Therefore, whichever direction the market decides to take, I will be ready.

The scenario I have for the DJI on the upside is moving into the range between 8900-9100, nearing the 200 SMA. On the downside, if the market decided to pullback and consolidate, it could pull the DJI back to the 7500-7750 area after a minor test of support at 8000.



For the SP500 on the upside, the next probable resistance level is 920/940. On the downside, if it does not hold above 875, it could retrace back down to the 800 level.



Finally, the upside for the Nasdaq 100 is 1470 near the 1500 level. There could be a minor test of support at 1380 before it breakout on the upside or the downside. If the Nasdaq moves below 1380, then it probably will not find support until it reaches the 1280 or the 1140 level.



These are the possible upside and downside scenarios I will be watching in the coming days. No matter which way the market decides to move, the next move will be dramatic. So prepare for some volatility.


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