The first two trading days in October have certainly started on a rocky path.  The stock market has lost approximately 2% of its value this week.

Can we expect more losses as October continues to unfold?  Obtain stock charts here for the following discussion.

The 11,000 resistance support level I have discussed many times in this column has at last shown up on the monthly chart as a trouble point.  11,000 also coincides with the downward sloping upper trend line that extends from the high of late 2007

So it’s not surprising that this trading level would at least highlight a price area where a consolidation would be expected.

The real question is will any consolidation here result in a longer correction that we could profit from on the short side?  Let’s view the shorter time frame stock charts for more insights and market timing data.

As I suggested might happen in yesterdays technical analysis, the weekly stock chart has switched into a cautionary posture.  Prices closed this week below the PSAR indicator.  This alone doesn’t guarantee a down trend on the weekly stock chart, but it is sufficient to alert us that a trend change may be taking place.

The CCI(20) line which is used as a confirming indicator is above zero but heading lower.  A transition below zero would help confirm a down trend is the strongest possibility for future prices.

As I have described many times, technical analysis cannot define with certainty the exact top or the exact bottom of prices – only hindsight can do that.  However, market timing analysis can certainly help us identify trends and when a trend change is likely.  And the weekly chart appears to be in a transition mode.  

We just have to be patient and let the stock market action in the days ahead show us which is the most likely tradable direction.  So for next weeks trading the suggested trading strategies will be overshadowed by a caution indicator on the weekly time frame.

On the daily stock chart prices are clearly in a bearish mode.  However, as mentioned in yesterday’s column the daily price level is at another support level of approximately 10,500.  There is fairly strong price support here.  As you can see on the chart this support is provided by the lower channel trend line and the 6 or 7 day price consolidation of late August.

Will this provide sufficient support on the daily chart to move the weekly trend back out of the cautious mode?  We’ll wait for an indication of that before taking on new long positions.

The hourly stock chart has started to create a downward sloping channel.  There is some support at the 10,400 level from the price gap on Sept 8, so this level may help prices on a daily basis.  If prices drop below this support level then additional drops appear likely.

Suggested trading strategies based on the current technical analysis and market timing signals:

It’s still a little early to take short positions or positions on contra-etf’s.  If the weekly stock chart continues its bearish activities then short positions may be warranted.  Until the stock market provides clear information on the possible future direction you may want to consider just waiting before taking on new positions on either side of the market.