Wednesday, April 29, 2009

Did we really create a base here?

Fed Day today, lets see what happens and whether or not we will see a strong rally with a break of 874. We are fairly well positioned for a break on the upside here. While many had looked at last week as very bearish I had indicated that you need to remain objective and consider the fact that it may have been creating a base.

We have seen this pattern many times, move along an up trend line to form various patterns, pennants, wedges and triangles, break out of trend line to retrace to previous low point, then rally strong and takeout the high.

Of course I am still very skeptical of this occurring here but I am getting more careful. I had closed out of all shorts and will probably wait to re-enter any position until next week. Fed meetings have been very volatile in terms of price moves making it impossible to manage stops correctly. Even if we drop/rally 30+ points it is more important here to wait for a confirmation.

As mentioned the upper range is very limited at the 912 while the lower range below 800 is quite large. If we do rally to 912 of course expect me to short but I do not think we will get there so it will make it very difficult to pick an entry below this point considering I need to keep the position to at least 915 before I can place a valid stop.

We do not gamble and this is one of those times where we need to sit it out. From a pure perspective of graphs take a look at the following. We have had lower highs yes, but we did not have lower lows. Nice little triangle here. To top it off we tested the breakout range of the wedge and went back to the current wedge line as well. Take a look at the previous post regarding wedge breakouts. It seems we have hit the nail right on the head and now formed another pattern that is normally seen as continuation. Overbought indicators have leveled out slightly giving the market a chance to break out again. MACD at zero indicating a longer term move to come. Can it be up twice in a row? Very unlikely but so was the wedge breakout I had explained. The least likely scenario occurred here as well.

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