April 20, 2011

An Overview on the Broad Markets - What Happens Next?

Today was a big day for the markets.  We had a broad rally lead by the tech sector, with Intel's strong earnings, and the Nasdaq finished up 2.10%.  The other two indices finished the day up slightly more than 1.35%.  My trader colleagues were all screaming, "I'm covering my shorts tomorrow!"  Let's not get wrapped up in emotions.  Take a step back.

Pictured below are four major indices that symbolize the broad American market, $DJI, $COMPQ, $SPX, and $RUT.  Each one, minus the Russell 2000, is tracing out an ascending triangle, a common bullish-biased pattern.  The patterns are somewhat sloppy, aside from the S & P 500, so if possible, I would prefer to place a breakout trade on that.

Click on the image to enlarge and sharpen.

With the ascending triangle patterns in place, we can have a bullish bias, but do not take action until there are definitive breakouts.  Today, all three of those indices finished the day right under their resistance line.  In addition, they each gave a stochastic buy signal.  A breakout may be pending, but hold on the trigger until we are sure.  We don't want another BVN tragedy.

I have a stop order on UPRO (a triple leveraged S & P fund) placed at 85.10,  about 1 percent above the resistance level.  Whether that is filled or not, we'll have to wait and see.


Bottom line:  Don't get excited yet.  The bear is anguished and retreating, but it may be a trap.

Happy trading,
~Christopher Diodato

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