Stock indexes rally

spy0512.pngMy last few updates suggested a retest of the moving averages. Last Friday the S&P, as can be seen in the SPY eft chart on the left, the index fell right to the lower moving average line (the darker blue line) almost to the tick. Today (Monday) the low of the day held right on the lower moving average and the index rallied to close over the upper moving average line. The yellow lines indicate a potential bull-flag formation. Momentum went to under the oversold line and today turned up. The QQQQ/Nasdaq was a bit stronger today, and had less of a pullback, as it didn’t quite reach the lower moving average line. I point out again that these moving averages are the standard Ehler’s mesa adaptive moving average and no parameters have ever been changed to fit the indicator to the price data. I don’t believe that these, or any moving average have any special power to hold a price pullback. I could pick any moving average and there would be swing points somewhere that the moving average would seem to hold. It is easy to be fooled by randomness when trying to derive rules based on technical indicators. But I do take notice when price pulls back to these lines when the trend looks strong, and other indicators confirm as resumption of trend. There is still a noticeable lack of volume. I was hoping that the pullback would show shrinking volume and then on an expansion bar the volume would increase. The volume on the Nasdaq, at least on the etf, was noticeably less today than on the smaller range bar from last Friday. Even on the s&p etf the volume declined a bit today, even though the range expanded. Also, weekly momentum on the stock indexes is starting to roll over from the overbought area, at least using the oscillators that I use. Also on the S&P price has stalled right at the 50% retracement level from the Oct 07 high to the double bottom area in Jan and March 08. With daily trends, momentum up, and the successful test of the moving average there could easily be a test of the high from the first of May. If that high is penetrated on weak volume, this rally would be suspect. If volume picks up the other concerns could be alleviated. There are still many prior swing points overhead that should offer much resistance if this market does work higher, so if the uptrend continues it could be bumpy, which could be fine for short term swing traders.
euro0512.pngThe EuroCurrency finally has a new downtrend, at least according to the moving averages, and is now testing those averages. Momentum has quickly moved back to the overbought area as price approaches the blue moving average line. This is almost the inverse of the s&p example. Currency trends tend to persist much better and much more smoothly than stock index trend. Although this market has had a few false starts trying to reverse the powerful uptrend its had for a long time. I will wait for momentum to turn back down before shorting. It is tempting to place order right at areas viewed to be support or resistance, but these lines don’t have to hold. They are just one piece of the puzzle.