Purely Technical Nightly Commentary -
Mar 21, '07:
The Fed came out with a few sound bytes that apparently instigated some buying today. Now, as far as we - at Purely Technical - are concerned it doesn't matter what the Fed said, what it means (if anything) in anyone's opinion, or what color the Bernanke's tie was (we don't know because we weren't watching, of course).
What we were watching - and ultimately the only thing that matters - was the action on the markets. That action was, quite simply, characterized by one word "buying". Now, as stock market folk know, "buying" could mean one of two things...
Firstly, it could mean that fresh positions were being purchased. Secondly, it could mean that buying to cover (short positions) was a large part of the buying. Does it make a difference which one of these two kinds of buying actually took precedence today? Yes, it does, but we won't get into the intricacies of what that means in the long run, especially since there is no quick and easy way to measure the percentage of buying that was actually short-covering. So let's move on to a couple of more relevant aspects.
The primary story on almost every index today was one simple fact and that is - the minor trend is now a bullish one. Having broken above their early-Mar reaction highs of 1407, 12335 and 1763, the S&P-500, Dow Jones and Nasdaq-100, respectively, have now all apparently changed classification of their minor trend.
Does everything look hunky-dory for the bulls now? Are we ready to reach and extend recent intermediate (and primary) trend highs? Well, it's too early to answer those questions, but we can certainly look for short-term signals that will tell us whether the minor trend change is for real or will turn out to have been a fake-out.
Let's take a quick look at the following chart which stacks the SPX, DJIA and NDX:
What stands out on these charts, as far as we are concerned, is a "line in the sand" and a "falling Band"...
The lines in the sand, are the support/resistance levels (from the reaction highs) that we spoke about earlier. These lines now need to hold support upon any retesting. If they fail to hold and price moves back under them, the minor uptrend is threatened and might have to be reclassified as being either sideways or bearish.
So, now that we know where support lies (or should lie), let's take a look at potential resistance over the near-term. The most obvious levels of resistance are those of the highs seen on each index in Jan/Feb. However, there is an important test for the bull run before prices get up to the previous intermediate/primary highs. That brings us to the aspect of the falling Bands...
The Bollinger Bandwidth on each of these indices is now contracting, which means that each of the Upper Bands is currently descending and will probably look to provide resistance to prices very shortly.
The action provided by price and the Upper Band, upon their meeting, will hold the key to near-term action.
If the Upper Bands continue to decline - they will more likely flatten soon - they might provide resistance to price and turn the indices lower once again. On the other hand, if price is able to push above the Bands and then cause them to expand once again, then the bull move is probably in good stead for the time being. (See current Upper BBand levels and the rate at which they are declining each day).
Like we said yesterday, we are likely at the beginning of a strong move on the minor trend right now and should see a good tradable move starting right here. Today's action seems to be hinting that that move is going to be to the upside.
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Tomorrow evening, we'll take a look at major developments on the charts elsewhere.
Until then, have a great trading day!
Asher Pinto
TheMarketMessenger.com
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