The Dow surges 889 points, what does this all mean? Well let me show you…

Following my trendlines from my last post we see that we broke resistance on October 20, 2008. It looked like we were off to the races, but as you know all rallies in a bear market are guilty till proven innocent. We needed a follow-through to confirm a rally…from October 20th to 27th we headed lower but we were always above our initial trendline. Staying above support was a sign that a bounce was near and this is exactly what I saw yesterday. 

Now take a look at this chart, it’s the exact same chart but with new lines.

Can anyone tell me what type of formation this is? I have talked about it in the past…

If you guessed FALLING WEDGE then high five to you! The falling wedge formation is a bullish indicator. Further, if you look at the MACD you’ll notice a bullish divergence. The MACD is moving up indicating that the markets should turn. Now is this a bottom or just a short-term bottom? I’ll let you answer that one…cause I’m not even certain we’re heading higher. I’m sure you peeps remember what happened the last time we went up 900 points on the Dow…that was only a few weeks back. Tomorrow will be an important day, if we follow-through we will get confirmation of a rally…till then, the overall trend is still down. The good news is that the S&P 500 broke through resistance and the falling wedge formation is under way…we can’t say the same about the Nasdaq though.

Unlike the S&P, the Nasdaq is sitting right at resistance. We will have to wait and see whether or not we can move higher from here. Just a reminder though, we have the Federal Reserve meeting tomorrow, typically there’s a lot of volatility on those type of days, so be careful with that.

Now I’ve been getting a lot of emails lately in regards to the market. As some of you know, life’s been busy and I’m getting less and less time to trade…so if you have any questions feel free to post them as a comment under these posts. If I can’t answer your question maybe some of our readers can, I just love it when we start having good convos on H.A.S. So “exchange-traded funds” seems to be the topic of choice. Most of the emails have been about ETFs and how to trade them in this market. I have been suggesting Ultra-Short ETFs (like SDS, QID, and TWM) since the start of this blog but let me tell you a bit more about them. Exchange-traded funds (ETFs) are trusts that hold shares of companies in market indices in proportion to their weights in the underlying index. ETFs differ from traditional mutual funds in several ways…they are traded throughout the day on exchanges, they permit short selling, and they may be purchased on margin. For a list of ETFs go to http://www.proshares.com. Now I did get a more specific question on ETFs, maybe one of my readers can answer this question for Tomas… 

“I realize some of the downward trend is because of hedge funds shorting the markets. I know little about etf’s, is there an etf for hedge funds? If not is there a way to make money on them losing money on an upswing? Would be great to make money on their misery.”

 
Richard
richard[at]hedgeagainstspeculation.com