Sunday, August 2, 2009

Weekend Review (07/27-31/09)

The stock market closed slightly higher on Friday, after the government said the economy contracted at a slower pace than expected in the April-June quarter. Advancing issues outnumbered decliners by about a 3-to-2 ratio on the NYSE, where volume was lighter than it was on Thursday.

S&P resumed its run higher and I remain bullish but we have come to the top of our broadening formation and we are seeing some bearish candles at our highs in the form of shooting star patterns. This indicates price rejection of the highs. Thus I am expecting a move down to support levels below at 970 or more likely 950 area which is also a 38.2% fib level but I will be using that as an opportunity to load up on longs. Also, the 200 dma has finally found support and is starting to turn upwards (the direction of the 200 dma determines the long term outlook).

Nasdaq has also reached the trendline of its broadening formation among other levels of resistance which include long term trendlines and most importantly its 50% retracement from 2007 highs to the november lows. This is a lot of resistance and we should see some consolidation perhaps down to the 1515 level which would be a 50% retracement of the most recent move up as well as previous highs. Trend remains bullish as the 50 and 200 dma have turned and are now pointing up but I am expecting a decent sized pull back, which is too be expected after such a big run up. The 50 dma can also be an area that it may find support.

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