Stocks plunged on Wednesday and firmed somewhat on Thursday. Even though the medium-term trends remain up, the short-term uptrends are in jeopardy and stocks are still ripe for a correction. A correction can form as a sideways consolidation, a decline or as a combination of the two (think zigzag lower). In other words, a correction could be choppy because there are plenty of bulls out there ready to buy the dip. The S&P 500 AD Line broke support with a two day decline and this reverses the 23-day upswing. The S&P 500 remains above last week's closing low, but a close below 1650 would break this short-term support level. The S&P 500 AD Volume Line has yet to break support and is testing last week's low.
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Key Reports and Events (all times Eastern):
Fri - May 24 - 08:30 - Durable Goods Orders
Charts of Interest: Tuesday and Thursday
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is
not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise).
We all need to think for ourselves when it comes to trading our own accounts. First, it is
the only way to really learn. Second, we are the only ones responsible for our decisions.
Think of these charts as food for further analysis. Before making a trade, it is important
to have a plan. Plan the trade and trade the plan. Among other things, this includes setting
a trigger level, a target area and a stop-loss level. It is also important to plan for three
possible price movements: advance, decline or sideways. Have a plan for all three scenarios
BEFORE making the trade. Consider possible holding times. And finally, look at overall market
conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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