Wednesday, May 26, 2010

TAIEX Outlook - Week of May 23rd

Not to say I'm good at this stuff or whatever (because I'm not), but it just shows that "fundamentals" and "news" does not really matter when trading stocks. I simply look at a chart, see support and resistance levels, trend lines, volume, and Fibonacci numbers.

What did I say back on the May 9th update when the TAIEX was hanging right at the 200DMA @ 7600 and change?
From here, I'm looking for some consolidation (sideways movement) before a lower high before moving lower once again. Again, looking at the Shanghai Composite Index, as long as it continues to slide, so goes the the TAIEX and likely the U.S. markets.
Well what do you know, it was as if the markets were listening to me. While I wasn't completely spot-on (the day after I posted that, the TAIEX dropped below the 200DMA before assuming the sideways consolidation). What did proceed after that was the lower high as well as the moving lower once again. Here's a snapshot of the market of where it stands now:

As you can see, the lower high was made at 7782.32, followed by lower lows. So that's that. Did I know about any earnings that may have "caused" Taiwanese stocks to go down or other "news" that experts claim have caused the markets to go lower? Not in the slightest.

So where to now? As I've mentioned before, I look at the Shanghai Composite Index for indications of where the TAIEX may be headed.

Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.

Keep in mind that all markets have been under heavy selling pressure over the last month, and that it pays to be cautious being long. I firmly believe we will still see lower prices across world markets later this year. As a result, I am cautiously long SPY calls as of this moment and looking for an exit around SPX 1106-1117.

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