Monday, July 20, 2009

Market Mondays

Below are five charts of the major ETFs. All of them have the following points in common.

1.) They all demonstrate a bull market upward move followed by a bull market flag/pennant pattern over the last few months.

2.) All have a buy signal from the MACD

3.) But all are also experiencing a very tight SMA patter -- that is, the 10, 20 and 50 day SMAs are all in a very tight configuration indicating a lack of firm direction. This pattern shouldn't be surprising considering prices are just coming off a period of downward consolidation.

What happened last week was very interesting because it illustrates why it's important to know the technical and fundamental picture. On Monday everybody (including me) we expecting the market to drop because of the head and shoulders formation on the SPYs. However, the fundamental situation changed when Goldman and Intel reported better than expected earnings. This got the market very excited about the possibility of a better than expected earnings season and it lead to a rally. Because everyone was short everyone started to cover their shorts adding upward pressure to the rally.

Click on all images for a larger image