It was an “inside” week to close the month of May – the weekly action screaming emphatically that it is drawing a line after its vigorous rally from the March low. The first item of interest on the chart is the TD Combo “buy” signal and the perfected TD Buy Setup at the March low. These bullish indications were confirmed by bullish divergence with price in both the RSI and Composite indicators (top and middle pane respectively). So what was viewed as a countertrend rally on the monthly chart was certainly a buying opportunity when viewed through the weekly prism.
As noted in yesterday’s post the market has reacted to the 930 target area by moving sideways for three straight weeks. Can we see any signs of a reversal here or is just a consolidation before moving to the next higher target? One applicable item to note has been discussed in this blog over the past week: The need for the weekly chart to move above 930.17 in order to “perfect” the TD Sell Setup recorded the week of May 22. Glancing at the technical indicators it does appear that we *may* get a bearish divergence between the RSI and Composite if we were to renew the rally; but that is only a possibility at this point. We shouldn’t even think about turning bearish on this market (according to the weekly chart) until we surpass 930.17.
In the coming week the current TD Supply Line can only be qualified by an open above 926.73 -- and this is unlikely. After dropping below the TD Demand Line the week of May 15 there has been no follow-through to the downside, indicating that there has not been a shift in demand. In fact, the supply and demand lines are equal at 927 – no wonder we have been trading sideways at this level! We should also take note that the Demand line stands at 964 next week. This is close enough to our 971 monthly target where we will have to watch for an instance of price coming back to “kiss” the bottom of the broken trendline before selling off.
Bottom Line: Although the weekly chart is not yet calling for a reversal of the rally from the March lows it is suggesting we pay close attention. Over the coming week we need to watch for a move above 930.17 and see how the market reacts to it.
Aside: TD D-Wave says the March low was the bottom of wave 3 or C from the October 2007 high.
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