Better Trader

When Good News Is Bearish

Today's news was positive, the ECB gave European banks 530 billion euros in loans and the US GDP numbers beat estimates. The following intraday chart of FTSE 100 shows today's price action.

Note the two spikes at 10:35 (LTRO result) and 13:30 (US GDP), investors got excited by the positive news so prices spiked. That was a signal to sell. Why?

Stock markets are tired after the long advance of the last two months. When a market is tired, good news will fail to push prices higher.

In addition there is strong resistance above 5900 (see today's post). Since early February rallies above 5900 have been rejected and the pattern is terminal (ending diagonal).

The bottom line is: when a market is tired in a resistance area at the end of a terminal pattern, it is a sell.

Research provided by e-Yield

S&P 500 On The 1.618 Fib Extension

Here is the daily chart, wave iii is 1.618 of wave i:

S&P 500 Key Levels

Cash prices

3rd resistance	1386	Top of channel
2nd resistance	1377	1.618 Fib exension
1st resistance	1373	Yesterday's high
1st support	1366	Yesterday's low
2nd support	1358	Bottom of channel
3rd support	1333	23.6% Fib retracement

US GDP Data in 15 Minutes

Q/Q change +2.8% (Bloomberg)

Gold Breaking Higher And Approaching An Important Junction

Gold spot is rallying to the target as explained in this post. The trend is down based on Elliott wave analysis and the rally should end below 1802. If Gold breaks that level we would change our view.

Why the trend is down? Because the decline from 8th November to 29th December is in five waves.

A five-wave decline should be followed by a rally in three waves ending below the start of the decline, in other words, below 1802.5 which is the start of the decline on 8th November.

Economic Calendar

Important announcements today (UK Time):

US GDP at 13:30

US Chicago PMI at 14:45

When The Bears Turn Bullish On FTSE 100 It's Time To Take Profits

The stock market was overbought during January and February and today, despite trading near the highs, it is no longer overbought. This overbought condition was based on the Top 20 Differential, an indicator that measures when the FTSE 100 is overbought/oversold. When too many stocks move up too fast relative to the FTSE 100 (outperform), the market becomes overbought. However, when an overbought market continues to rally for weeks or months we see the opposite situation.

Instead of outperforming the FTSE 100, stocks are now underperforming the index which is not a positive sign either. Some analysts use a moving average to identify when stocks are lagging. For example when the percentage of stocks above their 10-day moving average goes down while the market goes up it is an indication that stocks are no longer participating in the advance, they are lagging and this condition occurs near a market top.

The problem in a raging bull market is that investors are not rational, they buy what is supposed to go down and because too many investors are doing the same thing, it becomes self fulfilling and the market does not go down. This is why the FTSE 100 is still trading near the highs, despite a multitude of indicators that have flashed sell signals since January.




I must confess, this abnormal behaviour does not last for ever, but it can last a few months. On the above chart the FTSE has hardly made any progress since the rise in early February. The advance has been choppy and contained within a rising wedge shape which is a typical terminal pattern (ending diagonal). It's impossible to say the FTSE won't make a new high in the near term. If the high at 5964 marks the end of wave (v) of the ending diagonal, the chances are the FTSE won't make a new high.

Research provided by e-Yield

Investors Chronicle - S&P's bullish momentum

The S&P 500 is in a bull market, whichever way you look at it. Having suffered a short and shallow bear market between May and October 2011, it has since re-entered a full-blooded uptrend. Not only has it accomplished a gain of 20 per cent – fulfilling one basic definition of a bull market – but it has also just this week surpassed its previous high in May 2011 at 1371.

Read more via www.investorschronicle.co.uk

EUR/USD Back To Resistance

EUR/USD spot moved to 1.3484 which is near the previous top. A break above 1.3485 would be bullish. Next resistance is 1.3550.

FTSE 100 Key Levels

Cash prices

5th resistance	6105	February 2011 high
4th resistance	6014	78.6% Fib extension
3rd resistance	5964	Previous high
2nd resistance	5937	Yesterday's high
1st resistance	5930	Resistance line
1st support	5915	55-90min moving average
2nd support	5915	Previous support line
3rd support	5900	Yesterday's low
4th support	5790	Previous support line
5th support	5770	61.8% Fib retracement