Sunday, February 14, 2010

Charts: $OEX

February (front month) is drawing to a close with 5 more trading days left.  It is about time to look at where $OEX is heading to so that we could take up new positions to capitalize on the market.

I have also updated the $OEX charts (both weekly and daily) and added comments so that you could see what has transpired since we last looked at it on 17 January 2010, what is the current state of affairs and make an educated guess where it is heading toward.

On the $OEX Weekly, I have previously written that the "the momentum seems to be zeroing out but I could not clearly identify a more shallow C formed.  But it is nevertheless very suspicious looking.  Picking a top can be a dangerous thing to do -- a wounded bull can still hurt you."  On the $OEX daily, I said that the "$OEX daily is showing a clearer signal.  Both the histogram and the MACD lines are diverging.  Taking a look back at the weekly will conservatively put the price target at in the 490 region."

The suspicion that $OEX was running out of steam was quickly confirmed shortly after the last post was written.  It promptly fell from an intra-day high of 530.38 on the 20th of January to close last Friday at 494.40.  During that period of 28 days, it fell a total of 35.98 points or close to 6.8%.  It put in a low of 481.80 intra-day the Friday before last but rallied close near the high of 491.34, leaving behind a bullish-hammer looking candlestick.  However, the bullish hammer wasn't confirmed the following Monday.  Over the last few days, the pricing action showed very feeble attempts to recover previous losses.

The weekly impulse is still red, therefore allowing trades only from the short side.  It is currently just below its value zone (the area between the red and the yellow lines).  On the $OEX daily, you could clearly see the bearish divergence being worked out.  You could also see the the first higher-high, higher-low being put in for the short-term downtrend.  Notice that the feeble attempts to rally in the past few days could not even reach the value zone on the daily.  Also, note the power of the bear denoted by the depth of the histogram not seen in months.

In a nutshell, I continue to feel bearish on the market over the next 30 days or so.  The bear is gaining weight and I am of the view that any rally attempts will be quickly thwarted.  I also believe that the 480 support level will again be tested and be broken in the days or weeks to come.  The 450 support level though should be safe in the next 30 days or so.  The $OEX spreads that I'm putting up must subscribe to the above view for profit and downside protection.

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