Thursday, May 27, 2010

May 28th market action going into long weekend (Final Update)

I have posted 2 charts going into Friday's market. Both are of the Dow and are of 2 month durations. I have drawn a Blue line to show you how I came up with a top of this latest rally at 10,500 to 10,600. One chart is of Candlestick patterns and as you can see now the close on WEdnesday was a reversal Hammer pattern indicating today should go up, which it did mightily gaining 284 points to close at 10,258. Investors may take some profit on Friday as we go into the long Memorial day weekend. But I do not see giving back all the gains made today. We only have about another 250 points before we head down again.

My TZA Puts gained today. I bought many of these two days ago for $0.90 each and today the Bid closed at $1.15 and the Ask at $1.25. Some shares sold today for $1.21, which is a paper gain of 34%.

When I sell these as we approach the comparable high for the Russell 2000, which should be around 680-700, I will also buy TZA Calls again. They should be cheaper than my last sale price of $2.25 each. Today they closed at $1.30 with a Bid at $1.15 and an Ask of $1.28. So they have dropped already to a reasonable level to buy them again, as this was a 42% drop.

The last chart I am posting below is the one I posted back last Friday when I said the market was going to drop and the pattern which was to develop. This should now close that prediction.

UPDATE: 6:00am PST.

Personal Income rose 0.4%, according to data released this morning. That is good news. The bad news is that Personal Spending dropped to 0.0%. The Consumer is saving their money, not spending it. This is confirmed by the Savings rate data which was at 3.6%. Futures point up this morning but it is going to be a back and forth struggle for this market going into the Memorial Day weekend.

Art Cashin of UBS Warburg stated on CNBC confirmed my prediction that the market is forming the right Shoulder of a Head and Shoulder pattern or what I have called the "W" pattern. He expects that if the market can hold most of yesterday's gains that in the next week or two we will go up. He too believes that we will not go back up to the highs, so my forecast of Dow 10.500-10,600 range might in fact be his thinking too. Stay tuned!

UPDATE: 6:55am PST
Data out on Chicago PMI (Purchasing Managers Index) for May was at 59.7 versus 63.8 in April. This is another piece of negative data. Dow, S&P 500 and Nasdaq are negative now. The University of Michigan Consumer Confidence went up to 73.6 in May from 72.2 in April .

UPDATE: 11:00am PST
I have posted below the Intraday chart of the Dow and have drawn Red lines to show the trend expected after each "W" pattern. The first "W" pattern, while going up initially after the "W" did finally come to a lower level. The signal now is a rise in the trend even though the Dow has gone lower at this point. Hopefully there will be a little rally to stop it from going much lower than down 150 points. The Vix has also gone up over 11% so far today to 33.30 as the market hits the ows of the day.

UPDATE: 1:20 pm PST
The market has closed and I have added the final Intraday chart of the Dow below, to prove my methods to you. Notice that even after the last Update above, it looked as though we were going lower than the 150 point drop, that I said the "W" pattern had pointed up and that we would go up. Well we did. As a matter of fact, even the folks on CNBC thought we might actually go up at the end of the day, until the market sold off again. But, it you were trading today, interpreting charts can give you the edge and, as I have shown, it is not difficult if I can do it.

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Anonymous Anonymous said...

Have been reading your blog for quite some time and enjoy doing so. What are your thoughts post "market crash" and how do you see the markets reacting through this? thank you

3:26 PM  

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