Click on above image to enlarge & see 8/1/10 for how to interpret the top 3 charts
While last week was a total disaster for the bulls, Monday will bring a new opportunity. Looking once again at the S&P500 or SPY, we have several bullish indications showinging as of Friday's close.
First of all, in chart 1 of row 3, showing the SPY we have developed a bullish on balance volume (OBV) divergence. I have placed 4 small red marks on that chart. In the top half of that chart, the first red mark is the week before last's previous low and the second red mark is this past week's low which you can see is higher up. In the lower half, the red mark on the left shows the on balance volume level directly below the first trading low and the second red mark shows the a lower level on the on balance volume level directly below the second trading low. When the price has gone higher but the on balance volume has gone lower, we have a bullish OBV divergence. On balance volume represented by the blue line is simply a net ratio of number of shares traded above current price minus the number of shares traded below the current price. The 2 marked OBV points shows that there was more selling- trading below the current price - than buying - trading above the current price. Thus the blue line printed lower at the second red mark. What this divergence means is that while the market went higher there has been an overwhelming amount of selling taking the OBV level lower. When all of the people who sold and caused this blue line to go lower realize that despite the flood of selling that is going thru, the market has just been going higher, they will realize that they are going the wrong direction and will reverse to buying. When they do reverse because of OBV divergence it typically triggers strong quick moves to the upside.
In chart 2 of row 3, I have posted the great 108 EMA line and if you look closely at Friday's last bar, the intraday low touched down to it perfectly and the market bounced up from it. That bar is also a bullish hammer reversal candle as can be seen in the candles chart - chart 2, row 2. Additionally Friday's intraday bounce back up from the 108 EMA line is the first bounce on the line since the line itself has now started turning upward with this past week's trading. This is normally a huge lift off point.
Also, in chart 1 row 2, the volume indicator in the bottom half shows a volume surge on Friday breaking us out of the 3 week declining volume trend. If you look above it, the red 5 EMA and green 10 are set up for a potential red/green bounce with tomorrow's trading.
A second try at pushing the market up doesn't usually get to have all of the above bullish aspects going for it. With any luck the bulls will finally breakout of the congestion moving averages in chart 2 row 2 and take us back into the green bull channel in chart 3 row 2. Of course it all depends on the broad market not getting slammed down by bad economic news in the morning.
I have posted 6 new limit buy orders to go active 7am Monday morning.
Alan
