Wednesday, April 08, 2009

Where do we go now?

This is what I'm looking at tonight:

Yes, yes, very busy, so, let me explain.
I divided the chart into four segments, based on where the MACD lines crossed (Orange circles, boxes, and vertical lines). I placed a mess of trendlines to see if there were any correlations between the various indicators and price action.

The easy thing to spot is where the market bottomed in early March. Leading indicators were the positive divergence in the RSI, MACD trend & histogram, and Force Index. All those went flat while the market still dropped, until the market shot up.

I was actually hoping to find some good revelations on MA/EMA relationships, like if the MA(10) crosses the EMA(12) then I get a good buy/sell signal. I've stared at it for about 1/2 an hour now, and I don't see any indicators here. I got the idea of mixing MA with EMA from (excellent site).

But the point of all this is in the subject of this post: Where do we go now? Well, what I see is a flat RSI and MACD curve, downtrending MACD histogram and Force Index while the price has been channeling up. Since RSI is within normal levels, I don't give it much heed. But I do have a little more confidence in the MACD flattop. That negative divergence could be a telltale sign that this rally may be coming to a close, and Trader Stewie believes we might be setting up for an upslope Head & Shoulders pattern. I'm just a little skeptical about going bearish again already, especially since the VIX is testing support levels.

I still believe that we are going to challenge the March low of 666. We might not go that far, or we could even drop to 600 (or 480!). But this rally is so unnatural (I might go into my conspiracy theories another time) that it's best to stay light-footed and be able to get in and out quickly.

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