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Stock Market Buy Signal Suggests Early Week Upside Reversal

Stock-Markets / Stock Index Trading Jan 24, 2010 - 04:09 AM GMT

By: Angelo_Campione

Stock-Markets

Best Financial Markets Analysis ArticleThe system for the SPY is on a Buy signal 75% Long

Well, what a week! Tuesday started with a rally that took us to the highest close in 16 months and then we finished the week with a loss of over 5%!


The question now: Is this the end of the rally that started around a year ago? i.e. is it time to run for the hills?

It seems that we could get a bigger correction this time around, but I don't think we'll continue to sell off. We had 2 days in a row of around 2% drops and it's been a while since we had this type of action and it's certainly spooked a few participants.

We're now approaching some key support points and our system is on a buy signal. This all looks like a good recipe for a reversal in the coming week.

Having said that, it could just be a bounce, yes the system is in buy, but the system is designed to capture shorter-term moves and so can change relatively easily. In short, I think we're due for a bigger correction, but that may not play out for another month or so.

The current selling has certainly shaken the bulls and jolted people out of their complacency and maybe enough to see a decent rally to catch the new found bears out.

The week is likely to be interesting.

SPX Chart - Bigger Picture

This seems to have been a key week for the bigger picture. We finally got a break down of the rising bearish wedge as well as a cross over of the MACD.

While this now looks bearish for the medium term, I've drawn a thicker trend line to show the current trend channel. Don't be surprised to see support kick in here.

As discussed in the general commentary section, we could see a bit of a rally before continuing lower for the medium term.

SPX Chart - Shorter Picture

The shorter term shows how the market easily broke the first level of support on Friday. Now we are approaching more serious support between 1080 and 1090.

If the bear camp gets too packed here, we could easily see counter move here, notice the RSI approaching an oversold level.

A likely scenario now is for a consolidation between here and the 1120 area.

For the week ahead, support on the SPX is around 1080 and resistance is 1115 - 1120.

The VIX Picture

The last two trading days shows an end to the complacency I've been discussing for the last few weeks. All of a sudden fear has been awakened and the VIX has added almost 50% in two days!

The chances favor a period of consolidation from here, note the RSI approaching overbought and also the MACD getting a little ahead of itself.

The VIX measures the premiums investors are willing to pay for option contracts and is essentially a measure of fear i.e. the higher the VIX, the higher the fear in the market place. It tends to move inversely with the markets.

Performance

We're using a starting capital of $5,000 and allocations are based on 25% of this or the remaining balance.

Feel free to email me at angelo@stockbarometer.com if you have any questions or comments.

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By Angelo Campione

Important Disclosure
Futures, Options, Mutual Fund, ETF and Equity trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in these markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to buy/sell Futures, Options, Mutual Funds or Equities. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this Web site. The past performance of any trading system or methodology is not necessarily indicative of future results.
Performance results are hypothetical. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as a lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Investment Research Group and all individuals affiliated with Investment Research Group assume no responsibilities for your trading and investment results.
Investment Research Group (IRG), as a publisher of a financial newsletter of general and regular circulation, cannot tender individual investment advice. Only a registered broker or investment adviser may advise you individually on the suitability and performance of your portfolio or specific investments.
In making any investment decision, you will rely solely on your own review and examination of the fact and records relating to such investments. Past performance of our recommendations is not an indication of future performance. The publisher shall have no liability of whatever nature in respect of any claims, damages, loss, or expense arising out of or in connection with the reliance by you on the contents of our Web site, any promotion, published material, alert, or update.
For a complete understanding of the risks associated with trading, see our Risk Disclosure.

© 2010 Copyright Angelo Campione - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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