Sunday, July 24, 2011

market Outlook for July 25th

We closed strong on Friday forming a long lower shadow. Now, after a solid move upwards, this is not exceeedingly bullish. I know many would call this a hammer, but one must realize that candlesticks are only valid because of the psychology of the market participants that the candle represents. When we have a strong move down, the bears are in control here, so a long lower shadow forms hammer because a new buying force that was not present during the down move is now looking to gain control by "hammering" in a bottom. So the reason a hammer is bullish is because there is a new buying pressure that was not previously present. After an upmove, however, buyers were very present, as the upmove is evidence to that, and a longer shadow after an upmove shows that in fact, bears are gaining strength as there is a new selling force in the market causing a intra day sell offf that was not strong enough to cause significant selling during the upmove, so the bulls are weakening. Seeing as the shadow is fairly long, we see that the bulls are still strong though. A huge gap up followed by a hammer is bearish and called a hanging man, as if the bulls are in fact strong enough to gap up but than let bears take control intra day, than clearly this move was an artificial markup to provide a profitable exit for longs. But since we didnt gap up much, and did not form a hanging man tells us that the bulls, while a bit tired, are still very present, and may only need to regroup before making a next leg up. This week could be very telling. On friday, we did hold a close above the 23.6 fib, and that is rather bullish, but the momentum is now waning, and if the bulls can rest while holding near 1337-1345, without rounding, we could look for a nice break. A strong move down on Monday is unlikely as there is usually a warning candle of an impending reversal first. While not overly bullish, Friday's candle does not warrant a clear bearish warning, and we first must see more weakness if we were to expect a reversal down. We want to see a break of 1345 and than to use it as support, but look at price to use 1337 zone for support while it consolidates if we dont break right away. Next support is 1325, which is technical support and the 38.2 fib retracement, right under there is the 20EMA at about 1320, than look for 1305, 1294, which is also the 61.8 fib retacemnt. This summer mentality of buy the dips and sell the rips is being put to a test here, as we have ripped in early July, and gave back only half, and are now approaching highs again. If we cannot keep moving this is a lower high so remain nimble.

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