IBM has been roaring its way to new highs recently to levels not seen since 2000.  Let’s see the chart of this impressive stock, which has made new highs as the stock market indexes fell in 2008.  In fact, its lowest point this year was early January!

Price broke above what can be considered a pennant, flag, or triangle consolidation pattern.  Either way, it resolved into a continuation pattern, as price was supported by the rising 20 period moving average.  The resolution was quick and forceful to the upside, which occurred on very high relative volume.

Price is currently retracing part of its gains, but it wouldn’t surprise me to see price support about the $120 level.  Momentum on this swing was a little lighter than on the previous swing (hence the divergence) but price built a base from early March until now for making a new run higher.

Let’s pull it back to the weekly chart:

There is a lengthy upward sloping trendline, which has been tested both the upside and downside.

Price now sits just beneath that line after the recent large upward move.  Momentum also made a new weekly high, and again there could be strong support from prior highs about the $115 to $120 level.

In this environment, I’m sure the buyers are happy to see a technology stock performing so well.  Continue to watch this stock.

The DJ Transportation Index ($TRANS) is outperforming the Dow Jones index, which is an interesting development that has implications for Dow Theory.

Dow Theory stresses the ‘confirmation’ between the DJ Transports and the DJ Index itself (meaning both must make a higher high to signal a ‘Buy Signal’ and vice versa).

According to the theory, the Transportation Index has completed a higher high but is shy of its July 2007 closing high of 5,400 (which is 200 points away).

If you look back at a weekly chart, the Transports peaked a few months ahead of the market – so are they leading the market higher this time?

Some say that “the transports lead the stock market” which is a general occurence rather than a hard rule.

Nevertheless, the Relative Strength (bottom panel) is increasing as the Transports outperform the Dow Jones Index.

Also, notice how the Transports have supported on successive pullback to its 20 period moving average (the sign of a strong uptrend).

Notice also the ‘higher low’ that the Transports made in March when the Dow retested its January lows.  That was a positive non-confirmation of lower (Dow) prices.

It’s an interesting development that requires further analysis, so be sure to keep your eye on the Transportation index for more potential clues.

(Note:  Railroad stocks are keeping the index higher)

Not long ago, I discovered Andrew Horowitz’s website The Disciplined Investor which probably has become most known for its Podcasts.

So far, Andrew has hosted 54 episodes and has addressed a wide variety of topics, including many interviews with fellow bloggers and financial minds in the industry.

Most impressive to me, he recently interviewed former Labor Secretary Robert Reich on Super-Capitalism, which touched on a broad array of interesting economic topics.

He has also interviewed

Brian Shannon of Alpha Trends (ep. 40)
Adam Warner of Adam’s Daily Option Report (ep. 50)
Tim Knight of Slope of Hope (and founder of Prophet.net – ep. 47)
Barry Ritholtz of The Big Picture (ep. 46)
Gal Arav, creator of NewsFlashr (ep. 50)

And many other individuals.

The podcasts themselves pop-up in iTues via this Subscribe link but you can also go to his website and download them via mp3 or for Zune as well.

Podcasts offer an alternative to websites, because they can be downloaded and taken with you wherever you go, be it in the car on the way to work, on the subway, or while exercising at the gym.

Andrew’s podcasts are professionally produced, with top talent interviews, and he is becoming a leader in the emerging financial podcast world.

There’s an interesting confluence of support coming in on the Dow Jones and S&P 500 Averages.  Let’s look:

S&P 500:

On both charts, three proposed trendlines have all come together to a point, which sits just under the current index prices.

It’s interesting to have such a confluence.  Also, the key 20 and 50 period moving averages also have set-up just beneath the price which could also provide key support to price.  The 20 period has recently crossed above the 50 (which is bullish).

It’s just an observation, but it would fascinate me to see price shatter all these support levels.

Recall that price is still in somewhat of a downtrend, and is still beneath its key 200 day moving average, which is bearish.

The S&P needs to clear 1,400 and the Dow needs to clear 13,000.  If bulls take these levels out, we could have a retest of the prior swing highs.

Failure at these levels will push price down to retest the prior lows, and could even precede further.

It may be better to wait until a move is underway before joining, rather than trying to anticipate which direction you think it will break.

The Fed’s upcoming decision could be enough to propel the indexes out of this range and into a direction with conviction.  Until then, be safe!

In my trading, I utilize moving averages to determine trend, support/resistance, and price structure.

The example today from the FOREX Australian Dollar / US Dollar cross (AUD/USD) showed an excellent example not only of how price can respect its key moving averages, but of momentum divergences as well:

This is a 5-minute chart of the cross, which shows price beginning the morning (5:00am) flat before crossing under its key moving averages and then each successive pullback was resisted by the key 20 period EMA.

A momentum divergence formed until 8:00am, at which a large volatility move pushed price to a new momentum high and crossing above its key averages.

The moving averages themselves crossed, and each successive retracement back to the key 20 period EMA was met with support (providing a simple trade set-up to play for a small target with a small stop/risk).

As price traveled higher, yet another momentum divergence formed, warning that the buyers were lacking power to push the cross higher, and that successive pullbacks had reduced odds of holding support at the key 20.

TradeStation now offers simulated trading, and I’ve been doing some work with FOREX and finding very satisfying and encouraging results.  This example shows how key averages can support or even create low-risk trading decisions.