Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Thursday, July 22, 2010

We got our short squeeze...

...they were signaling in the last hour yesterday. The fact that the entire movement from the short squeeze held and did not pull back 30 or 40% at the bell is very bullish. The daily 5/21 on the indexes are looking fairly good now. We just barely crossed over the 50 moving average on most indexes decent volume. We are not out of the woods yet though, just having the price cross above the 50 moving average is bullish but Wall Street keeps a last minute bailout and abort trigger set where they don't commit to a move until the 5 moving average crosses above the 50 moving average which normally follows 1-2 days behind the price crossover. What Wall Street does is that they watch the volume level that the price crossover attracts from the masses of traders; if it's not high enough they will abort when the 5 EMA touches the 50. If their consensus is that there are not enough people willing to play the rally, they don't want to have to sponsor the rally on their own so that the instant that their computer systems detect the 5 EMA touching the 50, they dump their positions and go short huge and the average investor is stuck holding the bag. If they do like the amount of buying volume the price crossing the 50 attracts then when the 5 EMA crosses a couple of days later, they go in huge on everything and the rally takes off. So right now we are going to have a couple of days to see if they allow the 5 EMA to cross over and go big or they abandon the plan.

While penny stocks are only for seasoned traders, I will periodically mention a nice setup for those who like to use a few dollars of their account for a real gamble. The symbol is CIGX, back in March I emailed it to a couple of my followers at 1.05 and it went to 2.80 on big volume. It has now setup again on multiple technical signals. I don't expect as big a percent move this time, I believe the 3.00 level will prove to be resistance again, it looks to go from 1.87 to 3 for a 50% gain. Once again, purely small change gambling money on this one.

Overall, so far so good on the market move but we are due for at least a small pullback tomorrow because the advance/decline number on all US stocks closed today at 4856 which is as high as it ever gets. Under bullish conditions it will normally fall back to 0.0 level or if the pullback is pretty good sized it will go down to negative 3000 which is the buy level for the next oscillation up.

Still holding QLD & SSO. On another subject, the VIX - volatility index has recently completed a nearly perfect descending triangle visible on the weekly bars chart. If this triangle breaks downward which is the direction most likely, it will cause a nice rally that will go for a while. Bear in mind that right now it is right at its point where it becomes a very powerful and fast market changer. Being a descending triangle instead of symmetric, it has an 80% chance of breaking downward and the market rallying up. Many traders will be watching this closely in the next few days.


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