Analysis for 08-31-11

Intraday:

                We started off the day with a nice little rally as people came in trying to “game” the FED betting that the Fed would come out with QE3.  Although this seems to be their economic ammo I don’t think that we will be seeing QE3 as Bernanke clearly put the ball in Washington’s court.  If Washington ends up dropping the ball, which we can almost expect at this point, then we will see some form of QE (quantitative easing/printing money) sometime in late September. 

                After the speculation on the FED, we began moving down after the department of justice announced that it was blocking the AT&T/T-mobile deal.  Why this moved the market so broadly I have no idea.  The recent moves could be evidence that there are not many institutional investors in the market and the individuals are moving them.

                Altogether we ended up with a wedging pattern that has been forming over the past two days.  The upper and lower trend lines are still rather far apart so we could still see some movement within them.  This pattern doesn’t have any specific connotation (bullish/bearish) so I can’t say for sure which way it will break.

Daily:

                On a daily time frame our indicators are still showing bullish signals but I don’t think it will last much longer.  Today we formed an inverted hammer but if we combine today and yesterday’s candles (remember the additive property of candles?) we get what is called a spinning top.  Spinning top candlesticks are candles of indecision.  This combined with overhead resistance at the 50 day EMA (exponential moving average) and the 50% Fibonacci retracement level (Fibonacci retracements are numbers based off of the Fibonacci ratios based on the numeric sequence bearing the same name i.e. 0,1,1,2,3,5……).

                From hear we may continue if we can clear these overhead resistance levels to continue the double bottom pattern that I laid out and move to the 38.2 retracement level (which just happens to be our neck line) or continue up to the 23.6 level (this just happens to be where our 200 day EMA is at the moment. If we reverse from hear we can expect to retrace back to the 61.8 or 78.6 Fibonacci levels to form sub wave 4 of my wave count before moving back up for a sub wave 5 to complete my wave 2 and then go down to challenge the 1100 level.