Editor’s Note: David’s back this week with a very technical look at why the markets could benefit before the bottom falls out. As a reminder, the deadline to get in on a very exciting offer from Strategic Short Report is midnight tonight. Learn more about this service, and how one subscriber made $200,000 on one of its exclusive picks. Click here for more information…
Why the Markets Could Rally This Week Before the Downtrend Continues
By David Grandey
All About Trends
July 13, 2009
The amount of damage done to stocks last week was quite impressive in such a short period of time. Over the course of the last five trading days, the S&P 500 shed 2.38%, adding to last week’s dismal performance.
It should come as no surprise then, that we see more long side patterns (that mean stock could see gains over the course of the next few days) than we see short side patterns — at least in the short term.
But when we look at a timeframe longer than one week, most of the action is on the short side (meaning that most stocks look bearish outside one-week). Right now, the overall trend is down, and most short sell patterns we see out there need to get their pins set back up in order to allow us to bowl for strikes again.
In other words, it’s very possible that we could see the market go up this week before we see it go back down for a while.
As far as the indexes are concerned, we are locked in a downtrending channel, with the overall trend decidedly down. However, within bigger downtrends there are always countertrend patterns as we’ve recently seen. We want to key in on the short-term action this week and the patterns we are seeing in the shorter-term frequencies.
But first we’ll talk about the daily charts, which show a clear downtrend off the recent peaks.
One look at the Dow Industrials and the S&P 500 and you see the pattern is clear:
The big question next week is whether we will be able to get back to the 50-day moving average again. After all, we could just go sideways before another leg down ensues. I hope not — in clearly defined downtrends all rallies are shortable, and we’d sure like to see the opportunity to short the next rally that comes our way.
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The OTC Composite is a little different animal, but nonetheless it shows 3-waves down with resistance at the 50-day moving average. That’s an indicator that we could see a short-term uptrend.
Moving on to the shorter term time frequencies…
On to the 30 Minute charts…
If the markets want to follow perfect A wave order (Blue Boxes in all the 30 min.) then this C wave isn’t done. If this is the case then we’ve got another mini-wave up just like in the examples of the Blue boxes. And if it is done then downtrend line resistance may be the next stop (Blue Lines in 60 minute charts above for Dow and S&P, Green Line for OTC). Both are up legs, but what do both say after that? Down again… The market makes the call.
Going forward it’s all about whether or not the Dow Industrials and the S&P 500 can move back to down channel resistance for us and for the OTC Composite to back test the green trend line break. The 30-minute micro frequency charts may be pointing the way next week. They say we still may be in the C wave of this ABC correction thus far with a micro push higher then down again.
Should we push higher in both micro and daily frequencies, it sets up a lot of short sells and we want to be prepared for that.
Sincerely,
David Grandey
AllAboutTrends.net
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