On the weekend and in prior posts I have argued that 1380 is a key level that should hold if the near term bearish case for the S&P 500 is to prevail. Tonight's weekly candlestick chart for the S&P 500 provides additional support for that view, showing trend line resistance at 1380, at a trend line parallel to the line formed by the decline from the 2007 peak. This trend line angle also provided support to end the bear leg in early 2009, support in mid 2009, support in early 2010, resistance in 2011, and arguably resistance earlier in 2012.
Why do markets often respect recurring trend lines? No idea. Doesn't matter. Must be part of their nature. A bit like asking why does a tree have leaves? In any case, I find such trend lines a(nother) useful tool for measuring risk.
Tuesday, 3 July 2012
An update of yesterday's chart, showing the German DAX testing the top line of an upwards corrective trend channel, this time additionally illustrating the nearby resistance around 6600 that the market must beat to strengthen the bullish case. Perhaps of significance, today's foray higher by the DAX has not been reflected by an equivalent move higher in S&P 500 futures.
Breaking from my usual policy of showing candlestick charts, tonight I'm showing a daily close line chart of the EUR/USD. The line chart better illustrates that, over the past year or so, subsequent to daily closes below the 40 day moving average, this market has never beaten the preceding significant high. Of course this observation does not argue that a close below the 40 day moving average now guarantees or even indicates that lower prices lie ahead. What it does is provide a level to (1) manage risk; and (2) if broken, observe that the market's behaviour is changing, so be watchful for the end of the broader down trend.
The daily candlestick chart shows that Silver is again butting up against overhead trend line resistance. Also of note, the 18 and 40 day moving averages have recently completed a bearish crossover. As always, indicator signals can be taken at face value, and/or as set-ups ahead of a failed signal, which can often provide lower risk trade entries.