In a highly volatile – but relatively news free day, with the exception of banks that are still bleeding – stocks prices swing from being up over 100 points to being down over 100 points. 

Earnings news from companies today was generally good, so is this a situation of buy on the earnings rumor and sell on the news?

At the end of last weeks trading we suggested to subscribers that they maintain the current cautious approach to taking new long positions until the market can break through the overhead resistance at 11,250.  We also mentioned that the current environment may be setting up for positions on contra-etf’s. 

Contra-etf’s are market trading funds that allow you to take short positions in funds that go up in price when the market falls.  Contra-etf’s are excellent vehicle for earning profits in retirement accounts that are prohibited from short selling.

How close are we to suggesting positions in contra-etf’s?

As usual, let’s take a look at the stock charts of today’s action for an in-depth technical analysis.

The monthly stock chart shows October is likely to finish the month creating an indecision candlestick.  In addition, buying interest is certainly tapering off as shown by the trading volume.  However, we have 5 days of trading remaining in October and we don’t trade on the monthly basis so this chart is only used as for background reference.

On the weekly stock chart the CCI(20) is now below the 100 line and although still technically bullish it’s losing momentum which will be needed to breathe new life into this rally.  Stock prices on the weekly chart remain above the PSAR indicator, at least for now.

On the daily chart prices retested the downward sloping overhead resistance in early trading but quickly gave up and reversed sharply to the downside.  Prices stayed below the PSAR indicator and our confirming indicator, the CCI(20) has fallen almost to the zero line. 

Today’s action centered around the 11,000 support level and now that same level is going to act as overhead resistance once again.

Another day’s action like this would likely create a sell recommendation in our model portfolio.

On the hourly chart prices shot out of the gate in an opening move and quickly reversed to the downside.  This type of action is sometimes created by professionals selling into the remaining strength of a rally.  The CCI(20) has been firmly in bearish territory for the last 3 days.

Trading Strategy:

Watching from the sidelines is the suggested strategy while the market decides to indicate whether it is safe for new long positions or new positions in contra-etf’s.