Technicals | Aug 02 2010
By Rudi Filapek-Vandyck
August is looking to become a very interesting month, reports the TechWizard. US equities have rallied hard in July on the back of a positive Q2 results season plus surprising resilience in European economies. The rally has quickly reversed the technical picture and more and more technical signals are now in positive territory.
The TechWizard notes the S&P500, as well as the Dow Jones Industrial Average and the Nasdaq have all posted a second monthly close reversal on price charts. This could be a very positive signal as it indicates the bias for US equities is now to the upside.
A close reversal, explains the Wizard, is when price action initially sinks below the previous months' low, but then rallies above the previous months' high. This, he explains, usually sets up a trap for short term traders going short and subsequently forces these traders to start buying.
There is now a genuine chance more and more shorters will find themselves on the losing end and their forced buying activity might support markets in August, says the Wizard.
Also, a standard rule among chartists is that the bigger the technical signal, the more important it is. The fact that these close reversals have appeared on monthly charts is thus a powerful sign, he explains.
In addition, US equities seem to have found support at the 20 moving average (M/A), which is also a powerful positive indicator, says the Wizard.
All of the above increases the odds for a powerful rally on a 1-2 months horizon, he says.
The TechWizard is the pseudonym of Scott Morrison, whose experience in financial markets exceeds twenty years. Morrison operates his own website nowadays at www.techwizard.com.au The views expressed above are the author's, not FNArena's (see our disclaimer).
