Thursday, May 27, 2010

EMA Convergence

Wednesday's dismal close came close to negating the energy contained in Tuesday's hammer (takuri). Wednesday's close produced a 'shooting star' which suggests the opposite outcome as yesterdays hammer. The length of the hammer was significantly longer than the body of the shooting star--so the 'benefit of the doubt' will be given to Tuesday's reversal--albeit with significantly less power or validity.

The chart shows the exponential moving averages converging. (see previous discussion) When a convergence of the 21, 55 & 200 day exponential moving averages occurs in the time frame of an Energy Date, confusion and indecision is often the outcome. Note that the 21 day ema has crossed below the 55 day ema which gives more credibility to the claim that the intermediate term has rolled over and joined its nimbler counterpart. There is reason to believe that the early part of June might be indecisive and chaotic as the 21 and 55 day emas approaches the 200 day ema. However, it is quite possible that a spirited short term rally may ensue and set up the ultimate test of the moving average convergence.

Caveat: The market is in a precarious state currently and there is evidence that long term cycles may act in concert with shorter frequency cycles and produce what will make a 'flash crash' look like a day at the beach. Events like this can occur with little or no notice--bears are fast and vicious. Rallies should be used to plan and prepare for an aggressive bear campaign in the near future. If short, core positions should be maintained but it will be time to bring out the 'extra guns' when things align.

Speaking of alignment--here is tonight's mystery chart. More on this in future posts.

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