Monday, October 31, 2011

Was Today Just a Shakeout or the Start of Something More Serious?

After last Thursday's massive up move, a pullback on Wall Street was certainly to be expected.   Friday fit the definition of a "pullback" or "consolidation day" perfectly.   Today did not, as it was quite a bit worse, especially with the nasty selloff into the close.   Last Tuesday was similar to today and it turned out to be a buying opportunity.  Is today a similar "opportunity"?   I think we have to wait and see.

I'm looking for one very simple thing here as a clue as to whether it is time to buy this dip or time to be more cautious.  Anyone who follows my blog knows that I like to use the 9 and 20 day EMA as my "short-term" signals for the market and the stocks too.   I think they work very well.   So far since the 9 and 20 day EMAs crossed on October 11, the Nasdaq has not CLOSED below the 9 day EMA.   It has been tested a few times on big gap downs, but both of those gaps were quickly bought and the market proceeded higher for the next few days.

We are looking at a very similar situation here and tomorrow should give us a big clue as if today was something to worry about or not.   The charts below give you some clues as to why and also what to watch for.   I am in cash but ready to go with some longs as long as the market tells me it's OK.   Good luck Tuesday.

Russell 2000
All Charts from TC2000, Courtesy of Worden Brothers, Inc.


Anonymous said...

hi mac

i am using similar moving average on the daily chart. a 21or28sma with the combination of two EMAs. though the EMA may cross up or down slower than the market reverses, the other indicators on the daily chart are "still ok" as at today day close.

one more point is, the rising channel on hourly chart is still in good shape. last hope by wednesday.

Anonymous said...

damage is done on not just 15min and hourly chart but on daily chart.

the next bounce (if any) should be the last wave.


michael said...

keep up the good work