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Thursday, October 18, 2007

Let The Charts Tell The Story

Above is the daily chart of S&P 500. For the past two weeks since the Fed announcement, it has been tagging the upper end of the uptrend channel. Yesterday's aggressive pullback pushed it back to the lower end of the channel where it found support and bounced off strongly. While I wouldn't classify yesterday's candle as a hammer (the upper tail is too long) and the market to reverse and rise from here, support at around 1530 is quite clear.

The housing index is testing its low for the 4th time. This market is really in a depressed state and many analysts expect this to drag on until at least early next year. So while it is already at a low, there is no guarantee that it won't fall further. Same for LEN, a home builder stock.


Anonymous reno said...

it could be a double top also on the S&P chart and break the up channel's support and move downwards more (although the right shoulder is a bit higher than the left shoulder). Or it could may well bounce off the channel's support. I guess time will tell.

1:20 PM  
Blogger Simply Options Trader said...

Yes, that could be possibility. It printed a doji today, but still holding up well within the channel. Trend is still to the upside until it breaks the channel and carves out a lower high and lower low.

As you said, time will tell...

2:08 PM  
Blogger Tony Chai said...

Hi SOT :

As with any other candlestick chart pattern, it's always better to monitor the candlestick pattern a few more days in order to confirm the direction of the trend.

Yours Truly,

Tony Chai
My Options Trading Blog

6:22 PM  
Blogger Simply Options Trader said...

Hi Tony,
Candlestick by itself cannot determine a market's trend. While Fri's bar broke the short term uptrend line and the very bearish bar closed near its low and a downside bias is expected on Mon, its still too early to say if we are seeing a change in trend. Technically, we also need to see lower highs and lower lows to validate that.

I'll try to touch on this topic tomorrow.

5:13 PM  

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