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Stocks Recover But The Trend is Down

May 27 2010

Stocks Recover But The Trend is Down

Stocks have held in a good range this week with the Dow Jones Industrial average moving between 10,200 and 9,800. Longer term, the indexes are still in a down trend until there is a good break to the upside. The current trend started on May 4th with the average breaking below 11,000 and has continued downward to the low this week of 9,800, Due mostly to fear that the Euro will no longer be a currency and European countries will have serious debt issues for years to come. One could say that the five week chart presents a bottom formation already but I would consider today’s improvement as the first leg of a bottom formation on a three month chart.

If you examine the 3 month index charts on the home page of that is precisely what you see, a single leg of a ‘W’ bottom formation. Wait for the sell indicators to move to a hold position before considering any type of position purchase. When the trend indicators at change to green, you should be almost fully into your position. I still prefer the ProShares Ultra S&P 500 (SSO) for long positions and the ProShare UltraShort S&P 500 (SDS) for short macro positions. They are trading in the after markets and are fairly liquid so you can enter and exit positions without worry.

There was more good news in economic reports this week which bodes well for a turn-around in the indexes. Existing Homes Sales were better than expected in April. Additionally Consumer Confidence, the Housing Price Index, Durable Orders, and New Home Sales were all better than expected. On Friday there will be readings on Personal Income, Spending, Chicago manufacturing, and Consumer Sentiment. Keep your eyes on the charts daily for a signal that the indexes are breaking up.

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