OVI Market Update 21 July 2010

Hi Everyone

A Head & Shoulders or a Reverse Head & Shoulders … That is the question!

Some quite constructive patterns were being formed in the markets but remember, bearish markets can have powerful rallies, which then peter out!

Earnings season is upon us and results have been mixed. As such I’d expect the market to keep churning away and if I had to pick a direction, I’d pick south.

Now, here’s the dilemma facing traders who can’t sit still: are we seeing head & shoulders patterns (bearish) or reverse head & shoulders patterns (bullish)?

For me, all I’m concerned about is breakouts from clear areas of support and resistance. But let’s look the overall picture and see what sense we can make of it all.

S&P (SPY) OVI Chart (Tuesday):

OVI still negative on the S&P even after Tuesday big move up. Wednesday retreat after the Fed announcement is no surprise and the OVI will be more negative after today’s action (our OVI charts update a few hours after the close).

Nasdaq (QQQQ) OVI Chart (Tuesday):

OVI will be lower today from what you see here. The QQQQ OVI has been the most prescient in recent months, but just because it’s positive here, doesn’t mean it’s time to start on a buying spree!

Remember, there always has to be a breakout/flag pattern with clear support and resistance as well. Looking at this chart I see a head & shoulders within a larger head & shoulders … that doesn’t bode well for the Nasdaq.

The nearest upside breakout point is just above $46, however to clear this bigger picture head & shoulders we’ll need to clear $48.

Dow (DIA) OVI Chart (Tuesday):

Even the often-bullish Dow OVI couldn’t get above zero on Tuesday and will be lower when today’s data has been calculated.

GS OVI Chart (Tuesday):

GS broke nicely from the $140 resistance (OVI became positive the week before!) and is now getting a bit choppy, making it more challenging to trade.

AAPL Chart (Wednesday):

Earnings was initially well received, resulting in a nice gap up, but the stock finished almost on its lows for the day, almost filling the entire gap. Sign of a tired market.

Ok, that’s it for today … I’ve been saying for a while that my view is this market hasn’t yet seen its lows … That’s still my view. The last couple of months have seen some great trading opportunities with the markets behaving in a technical fashion to the downside. This recent rally will, I believe give us some more room to trade to the downside. But as ever, we’ll only trade what we see, ok?!

All the best

Guy

To learn more and have access to the OVI visit my Private Traders Club area.

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OVI Market Update 21 July 2010

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