Monday, May 25, 2009

A Very Nice Trend

One of the reasons I like trading the Qs so much is the fact that they trend so well most of the time. Looking at the above chart, we can see 8 weeks of higher highs and higher lows after the reversal bar that marked the bottom to the reversal bar that marked the recent high. It looks fairly clear that wave c of the current correction should be upon us this week. The target zone for the end of the correction is shown above at 30.49 to 31.63. I will be looking to exit my partial index, RIMM and EXPE short positions and in that area.

A move above the high of any valid reversal bar on the daily chart will be an opportunity to take a partial long position. When entering positions on the daily chart it is important to give the market time to confirm the move by waiting at least 30 to 60 minutes after the open to see that the signal is not a fakeout. Ideally, we want to see a move above the high of a reversal bar accompanied by a move from the open of at least 1% in all of the indexes on above average volume. If these are not present after the first hour then wait until you get confirmation before entering a position. This small step will save you alot of bad entries. If you are not able to watch the market all day, just be ready to jettison a position that goes against you quickly.

One thing we must prepare for is that the completion of the current move down in the indexes may just be wave w of a double zigzag or a complex flat correction. If that is the case, then we will see a move back toward the highs followed by another retest of the upcoming low. The key will be confirmation by volume and the advance/decline line. Once this correction is complete, I expect a move in the Qs to 37.50 to 40.00 and possibly as high as 41.24, which should complete by mid-July to early August.

Gold is at resistance and must hold up in this area in order to advance to the recent highs. The UNG crashed last Thursday, but may be set to resume its advance. My current stop is 13.10. Oil looks like it will continue higher but may consolidate for a while after reaching its 200dema.

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