Divergence Will Be Resolved
The
short-term uptrend from a key inflection zone remains intact, and
the extent of the move puts the scale-in position trade deep in the black for
the SPY and DIA. The Dow
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$INDU |
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the July 24 major reversal date, and the SPX
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$SPX.X |
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+17.8%. Sector moves have been excellent, with the BKX advancing 29%, the
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condition going into its seasonal pattern.
The SPX and Dow are in
positive 1,2,3 moves, but the Nasdaq
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1354.48 to get it in sync. Before that happens, I would expect the indices and
sectors mentioned to back off. The BKX is right at its 10-week EMA, as is the
PPH, which closed just above its 10-week EMA on Friday. The Dow closed at 8745,
which is just below its 10-week EMA, and also the 8760-8770 standard deviation
level from the longer-term moving average. The upper Bollinger Band is about
9000 with prior price support, which is now resistance, at the 8900 level. The
SPX runs into the 50-day EMA and upper Bollinger Band from 937-950.
If you have not initiated
a position trade when the timing and reward-to-risk was in your favor from the
lowest common denominator, don’t get overexcited at these levels. The SPX and
Dow have made higher highs, higher lows and higher closes for four straight
days, so it’s certainly vulnerable to a pullback. Make sure you also take the
short setups on the intraday charts regardless of where you have moved your
profitable stops up to on your position trade.Â
One of the things I like
to look at for early warning on short-term trends is the three-day moving
average of the high, which for the Dow is 8658, three-day moving average of the
midpoint, now 8532, three-day moving average of the low, which is 8407, and the
three-day moving average of the close, which is 8637. This sequence of numbers
is looked at in conjunction with any key moving averages, volatility bands and
standard deviation levels. The Dow closed at 8745, so it is still above all
warning levels. Also, I don’t expect the current divergence to continue between
the major indices and the semis. Whether the indices back off first or the semis
start to go doesn’t much matter because either way there will be a trade for us.
I see this morning that Lehman bumped
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MXIM |
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ADI |
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LLTC |
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PowerRating) to
Overweight. So, expect more volatility as the analysts battle it out. Either
way, it’s good for us on an intraday basis.Â
Have a good trading day.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS