Impulse Buys in Dow and THE Dow

Apr 9, 2007: 8:54 PM CST

We survived the Jobs data to the upside, with positive surprises higher than expected. Perhaps the economy is doing better than expected?

The Jobs Report is a lesson in how good news can be bad news for the market, and that a deeper level of analysis is required for proper market study. While there are other blogs more suited for Economic Trends and analysis, suffice it to say that the news is not nearly as important as the interpretation and reaction to the news. After all, people placing trades (calculated ‘bets’ on the future) move prices, and not news itself.

In fact, news releases are quickly digested and priced into the market. While it is best to combine fundamental and technical analysis, it is far easier to analyze techncial data (focusing on price and volume) than fundamental.

As such, here is a chart of the Dow Jones Index, which just fulfilled an “Impulse Buy” trade.

dow-apr-9.png

Notice the New Momentum High on March 26th, followed by a reaction against the impulse, and the buy condition occurred when the market found support at the 20 period moving average. The trade’s goal was to reach the most recent swing high, which was achieved. We appear to be ready for a counterswing to bring price lower temporarily before swinging back up to a higher high.

Let it be stated that the market is reaching the gap area created by the February decline, and this likely will serve as a temporary resistance area as the supply of sellers come back into the market. This is probably not the time to be initiating new money into the market – be patient for a quick pullback before entering. We do have a confirmed, technical uptrend still in tact.

I also wanted to illustrate the “Impulse Buy” pattern with a recent chart of DOW. Dow Chemical Company, that is.

dow-chemical-apr9.jpg

Stops would be placed conservatively below the 50 period moving average… but if the stop was too close, it would have been another instance of the “perversion trade” where the stop was rinsed (taken out) and then the move occurred quickly after the stop.  This is another case of tolerating a little “heat” (volatility) in price in expectation of the anticipated price move.

2 Comments

2 Responses to “Impulse Buys in Dow and THE Dow”

  1. BILL KEMPERMAN Says:

    ‘While there are other blogs more suited for Economic Trends and analysis…”
    As always , am very enlightened by what I learn on this blog . I am relatively new to trading (3 yrs) I generally follow sectors , stocks therein . A couple blogs that I have found helpful on economic micro and macro analysis , that are user friendly , no PHD required are – The Big Picture , and the Capitol Spectator , both reputable , professional moderators as well . Hope this is OK that I posted . Thank you .Bill
    K.

  2. Corey Says:

    Thank you Bill! Always feel free to comment.

    I appreciate your support and glad I can help a bit. You have a strong foundation when you follow sector trends, rather than just trying to analyze isolated chart patterns in individual stocks. I do read the Big Picture (it is amazing) and have not discovered the Capital Spectator yet, but will be doing so in the future and thank you for making me aware of the site. I provided the links to both sites here.

    Feel free to jump in anytime!