Technical Analysis | Stock Market Timing Signals | Top Stock Picks

Stock prices hit the skids today as traders and investors looked forward to a long weekend and likely wanted to lock in some profits.  The broad market lost about 130 points today – a little over 1% of value.

Banks led the selloff today, even as JPMorgan announced better than expected earnings.  However, revenue missed forecasts.  Intel, who announced spectacular earnings after the market yesterday, fell about 2%. 

This type of action is beginning to appear as a market in a “buy on the rumor – sell on the news” type of environment.  The rumor being increased earnings during the fourth quarter, and the news is starting to come out.  This is the type of situation where big institutions start to unload stocks at high prices onto retail investors.

So we need to be extremely careful in this environment.  This could be the beginnings of a new longer term downtrend.  We’ll have to stand aside and see how this reaction plays out.  There is definitely a slowing of upwards momentum on the longer term charts.

January trading is about half finished and the monthly chart appears to be already reacting to the overhead resistance at about the 12,000 level.  In addition to being a significant number, this level also corresponds to the low of September 2009 and the high of October 2009.  There are probably a lot of investors interested in getting back to even at this level.  Their selling activities could prove difficult to overcome. 

 Today’s sharp price drop is not very apparent on the weekly time frame.  All three indicators seem to be holding their own to some degree.  The CCI is above 100 but falling slightly, the MACD has returned to flat and the stochastic is still high but looking a little weak.

Another week like this one will likely move prices below the PSAR which would be another indication of a trend change.

Stock prices on the daily chart fell sharply and moved below the PSAR.  Two PSAR switches in as many days are real evidence of a market that just can’t make up its mind which direction it wants to go.  Trading volume increased today which is a sign of institution selling or “unloading at the top” type of action.

All three of the momentum indicators fell.

The 30 minute chart is really scary.  Prices fell precipitously from the opening bell until they reached the support level of the low set Tuesday.  Once at that level a hammer or bottoming candlestick was evidence that a bounce was likely.  Sure enough, prices stabilized a little with the last hour of trading at least pulling prices off the low for the day.

The indicators on the 30 minute chart appear to be showing a strengthening of upward momentum.  However, the market is closed on Monday so the next opening event is 3 days away, which will likely reduce the likelihood of this late small bit of strength contributing to Tuesday’s opening.

Trading Strategy:

Stand aside until these sharp movements identify a profitable trend.  We’ll let you know when that occurs.

Our strategy of only considering new positions in up markets should have kept you out of the market for the most of this week. 

Profit taking and tightening of stops should be the focus of activities before the market opens on Tuesday.

Stock prices will need to close solidly above the 11750 resistance level in order to justify even considering new long positions in this market.  

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Stock prices continued to churn for the second day after the big run-up earlier in the week.

The weekly stochastic and CCI indicators continued their move up with the MACD remaining flat.  With over half of the trading week in the history books the weekly candlestick is still showing a solid move up.  However, two days are left in the trading week and all eyes are focused on the broader employment report due out on Friday.

Let’s go to the stock charts for an indepth technical analysis and market timing assessment.

The daily chart showed some churn in the market today with traders and investors considering weakness in the tech and telecom sector along with signs of a more stable job market and services sector.

The CCI and MACD on the daily chart continued their move up while the stochastic fell slightly.  Trading volume fell from yesterday but is right in line with average volumes.

The choppy trading can be seen clearly in the 30 minute chart.  Prices fell at the open, and then recovered a little bit, only to flip-flop above and below the zero line all day.

Trading Strategy:

Prudent and aggressive traders should consider new long positions on well chosen stocks on days the broad market is increasing in price.  This means that prices are above the prior days close and above the high created in the first 30 minutes of trading. 

Trading Strategy:

Traders should consider new long positions from our top stock picks if the market moves up tomorrow.  See the top stock picks email for additional information.

Our cautious strategy towards this market for the last week or two seems to have paid off as the broad market loses over 116 points in the last hour of trading this year. 

It remains to be seen if more profit taking will occur on Monday, or if the bulls will return to push this market higher.  Right now it seems that Thursday’s sharp loss could be an early indication of additional profit taking that may occur at least during the early part of January.  Technical analysis of the stock charts will yield additional market timing insights.

On the monthly time frame, price growth still continued through December, but at a slower pace than earlier in the year.  Two momentum indicators, the stochastic, and the MACD are pointing towards increasing upward momentum.  However, the CCI is not which is a worrying sign.

Trading volume on the monthly basis has also been moving down even after accounting for the end-of-year holidays – which points out how low November’s volume was.  December’s candlestick finished with a topping tail and the PSAR getting closer to tripping to a bearish condition.

Prices on the weekly time-frame are looking a little top heavy, but the daily chart is where all the real damage was done during Thursdays trading.  I mentioned a few days ago the daily chart was looking a little top-heavy.  Regular readers will recognize the strategy of trading when the weekly time frame matches the daily time frame, and right now both the weekly and daily are looking down.

The CCI and the stochastic on the daily chart are both sharply negative, moving sharply in the same direction that was observed earlier in the week so there really wasn’t any surprise that we had a meaningful drop in prices.  The MACD has not gone negative yet, however, the MACD usually follows the stochastic and the CCI so that isn’t a surprise.  What is notable about the MACD during December is how flat it was.

On the 30 minute chart you can see the drop in the morning hours, the flattening during the mid-part of the day, and then the sharp drop during the last hour of trading where the market gave up 80 points in 30 minutes – not a good sign.

Looking to the last chart in the series, SH, which is a Contra ETF, is starting to look positive.  This is another indicator of the increasing potential for a downward move in stock prices. 

Trading Strategy:

If you don’t already have stops in place to protect profits and your overall portfolio from large losses, now is the time to do so.  Traders should hold off from taking new long positions until we see how far this down move will go.

The quadruple witching day – a quarterly event in which stock index futures and options, as well as individual stock future and options, all expire simultaneously – created increased volatility today.  In addition to the volatility, trading volume increased because of the contract unwinding taking place.

The broad market finished just about flat for the week but up approximately 70 points for the day.

So the squeeze continues.  Just when you think the market is breaking out up or down, it goes the other way.  Our cautious strategy will continue until this type of market action results in a clear direction with some momentum behind it.   

If you want more evidence of this market volatility, just check the market timing signals chart at the bottom.  In the last 3 weeks of trading the indicator have changed direction 6 times, a highly unusual event.  

Let’s take a look at the stock charts for a more detailed technical analysis and market timing insights.

On the weekly time frame, this weeks trading created a clear indecision type candlestick.  Prices finished just about where they started the week.  Because they started and finished flat, the lower channel trend line just keeps getting closer and closer to the market price levels.  This trend line also traces the direction of the 20 week moving average, the support area between 11,200 and 11,250, and the price break in late September of 2008.

The CCI indicator was up a little for the week, the MACD was flat – nothing new there – and the stochastic is flat.  What is noticeable about the weekly indicators is that prices are maintaining their level while the indicators decrease – not a great sign.  Trading volume for the week was higher than last week but that was mostly due to the increased trading volume due to the quadruple witching day mentioned above.

On the daily stock chart, the increase in trading volume is even more apparent.  Stock prices finished the day right at the upper end of the support/resistance level of 11,250.  The MACD and stochastic indicator finished up for the day but the MACD finished lower.   Prices on the daily chart also moved below the PSAR indicator so a tightening of stops and some profit taking on profitable positions may be prudent at this time.  This will protect your portfolio should the market break sharply to the downside.

The markets volatility is even clearer on the 30 minute chart.  Prices jumped out of the gate at the opening, fell back at the 10am reversal time until about lunchtime.  Late morning trading created a hammer candlestick at the lows for the day with prices climbing back into positive territory.  The last hour of trading created the bullish move to the 11,245 price level for the broad market.

Trading Strategy:

Prudent investors may want to sit this market out until a clear uptrend or downtrend develops.  If you want to take new positions use caution.

Aggressive investors and traders should play the market up or down as it develops. 

Use the expanded week-end edition of the top stock picks email for a large selection of stock picks for a variety of strategies.  

In yesterdays email I discussed how the hammer candlestick formed in the days trading action could possibly lead to a limited rally in stock prices.  Today, stock prices ran up at the open, fell back 1/3 of the distance, then fell again and recovered slightly in the last hour of trading.  

All told, today’s trading resulted in a modest gain of 57 points.

Is this a move up that you should pay attention to?  Prices have not closed above the overhead resistance level of 11,250 that is the upper limit of this range bound market, so the answer for now is probably not.

Let’s take a look at the stock charts for a more in-depth technical analysis and market timing strategy.

On the weekly chart, prices have moved up to near the highs for the week.  The stochastic, MACD, and CCI indicators are fairly flat to dropping, indicating an overall weakness in momentum.  Stock prices are certainly at the lower end of the up trending channel and look like a rally could ensue, but until prices move up and indicators turn up, any daily rally is suspect.

The stochastic, MACD, and CCI indicators on the daily time frame are certainly starting to look a little stronger.  The stochastic and the CCI has triggered to the bullish side.  The MACD is still heading down.  Today’s action created another topping tail candlestick and still hasn’t closed above the overhead resistance line.  In addition, stock prices need to move up to the 11,310 level to trip the PSAR indicator to bullish.

This is a market that has some work to do before you can feel safe committing to long trades.  It is also noncommittal on the short side – although I think short trades are going to be in the near future based on the lackluster market action.

Trading Strategy:

This market remains range bound between 11,000 and 11,250.  Until stock prices close solidly outside these levels it will be difficult to create profits in either direction.  Prudent investors and trader should sit on the sidelines until a trend develops.  Aggressive investors should play the market up or down as price moves develop.

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In response to the November job report, stock prices shot out of the gate at the opening only to fall back to the opening price two times during market hours.  The last hour of trading created a gain of 81 points after being up twice that at the open.

This type of action is potentially damaging to the rally in stock prices – it may be an indication that a recovery is already priced into the stock market. 

A price consolidation or reversal may be required to clean up any excesses created since the rally started early in the year.  Based on the technical analysis of current stock price levels, the short term movement of stock prices from this point could lead to a stronger trend in either direction

Visit this link – Stock Charts – to access the charts referred to in the following technical analysis and market timing update.  If you haven’t already done so, register for any future changes to the location of these charts here – stock charts.

This week I’ve added two indicators to the standard market timing stock charts.  You will find that the MACD oscillator and the Fast Stochastic will add another level of granularity to the technical analysis that I think you will find useful.

Stock prices moved up modestly for the week but still seem to be struggling with the support/resistance at about the 12,500 level.  Both the Stochastic and the CCI price momentum indicator are bullish on the weekly time frame.  The MACD is starting to level out.  One encouraging sign is that the trading volume for the week appears to be approaching more normal levels.  Do not compare this weeks trading volume to last weeks volume.   It would be an unfair comparison due to last week’s shortened trading week due to the Thanksgiving Holiday.

On the daily chart stock prices created a second topping tail candlestick in as many days.  Today’s topping tail occurred on expanding volume which is a bearish signal.  All three secondary indicators, the Stochastic, the MACD, and the CCI, all appear to be “confused”, there is no strong indication for either direction, up or down.

Stock prices need to move above the 11,250 level and close above the short trend line drawn on the last 3 weeks trading in order to create the momentum to move higher.  On the other hand, a move down and close below the 11,000 level could significantly increase the probability of a large down move.

On the hourly chart, prices never moved above the high created in the first 30 minutes of trading.  This observation alone would have kept you out of the market today.

Trading Strategy:

This is a market that could go either way and caution is advised.

Until the stock market provides an indication that momentum is increasing in either direction, traders and prudent investors should sit on the sidelines.  Aggressive traders can play the market either up or down as it develops.  

Typically, doji candlesticks can indicate a weakening of the current trend.  Viewed in that light, today’s action should be taken as a cautionary signal but not a definite turn in the trend – especially because the longer trend is still up.

Let’s take a look at the longer term time frames in order to create a more comprehensive technical analysis from which to glean some market timing signals.

On the weekly stock chart, prices are continuing their move up from the support & resistance level of 11,250.  A few more moves up in stock prices have the possibility of really igniting a solid rally that could potentially reach the next overhead resistance level at 12,000. 

The weekly price momentum indicator has increased to a level of 106.54 while stock prices have moved solidly away from the PSAR relative price indicator.

On the daily chart you can clearly see how today’s stock market action has created the doji candlestick.  The price momentum indicator is heading upwards and is now at 94.87.  Today’s action was the follow-up day to the PSAR switch that occurred on Tuesday.

A price move above the 11,311.55 index level would be bullish for the market.

This PSAR switch when combined with the weekly status caused us to move into the market with our model portfolio today.  See today’s top stock picks email for more details on the model portfolio transactions.

On the hourly chart prices moved up briskly from the open, fell back, then spent the balance of the day right around even.  The last hour of trading saw a boost in stock prices that may flow over into tomorrows trading.

Trading Strategy:

Given the market internal action it appears safe to consider new positions in strong stocks that are moving up on days that the broad market is also moving up.

For technical analysis and market timing signal updates at the close of business for each market day visit our subscription page for a free trial.

After last Fridays’ down day that resulted from the Dubai debacle, stock prices turn in a mixed performance for the last trading day of the month with the broad market finishing up 39 points.

Is this enough to justify new positions in this market?  Let’s take a look at the charts for some technical analysis and market timing insights.

On the monthly chart (attached) stock prices during the month of December have charted a solid gain of 5.38% or 565 points.  This increase pushed the momentum indicator above the zero line to a level of 16.66 and kept stock prices well above the relative price indicator. 

We don’t usually trade from the monthly chart but it’s useful to view the action to formulate background knowledge of the trend.  The most worrisome aspect of the monthly chart is how the trading volume is decreasing month to month.  In a solid bull market you’d like to see trading volume increasing, not decreasing.

Nevertheless, the weekly chart is still showing a bullish position, but unless the chart gets stronger, this market may be headed for some challenging trading days ahead.  Stock prices on the weekly time frame just seem to be stuck at the old resistance level of 11,000 to 11,250.  The price momentum indicator is getting weaker, the relative stop-price is getting closer and closer to the market level, and the volume is decreasing.  These are not good signs.

On the daily chart, stock prices formed a hammer candlestick today, just where you’d expect to see one form.  Prices are resting right on the support level of the moving averages, the lower up trending channel line, and the price level of 11,000. 

The days ahead will likely be critical days for the overall market.  A rally will need to build from these support levels and need to push prices above approximately 11,250 to renew this rally.  This is shown clearly by the hourly chart.  If prices sink further below the current support level then a longer term trend change may be in the works.

Trading Strategy:

Until this rally continues we recommend sitting and watching to see what this market is going to do.  There is increasing risk the closer we get to the end of the year that portfolio managers may start to take profits off the table which will lead to price declines.  If the daily posture turns positive, we’ll start recommending long positions again.  

This post is a copy of the technical analysis and market timing email that was sent to subscribers exactly one week ago today.  If you are interested in a subscription so you can get these updates at the end of the trading day, visit our subscriber page.

An improving housing market report, a weak dollar, and a surge in commodity prices all helped push stock prices higher today – at least initially.

Stock prices shot out of the gate, with the broad market averages giving most of the gains back by the close of trading.

The Dow Industrial Average created a new high today while the broader market appears to be suffering slightly.  This divergent action between narrow averages and the broader market can be a sign of weakness.

The daily chart of the Wilshire 5000 average, the broadest stock price average widely available did not move above the price level indicator on today’s action while the Dow and the SP500 did.

In sympathy with the Wilshire 5000 index, the Nasdaq Composite also did not move up significantly.  Both these indexes that did not move above the price level indicator continue to look weak.  Interestingly, both the averages that did not move above the price level indicator are the broader ones.

Let’s take a look at the daily chart of the Wilshire 5000 (attached).

There are several ominous signs on this chart that will make us want to sit out the next few days of trading – especially due to the shorter week and the unpredictability of stock prices during holidays.

The price momentum indicator has not created a new high while the prices did create a new high in November trading.  Stock prices are still below the price level indicator and created a topping tail today which could lead to weakness in tomorrows trading.

Trading volume today was weak and in fact has been dropping all through the month.  This also contributes to the technical weakness in this chart.

On the hourly chart (attached) the price jump in this mornings trading did not reach the highs made since the middle of the month.  As with the daily chart the price momentum indicator is weak.  Traders spent most of the day giving back the gains made during the first hour of trading.  The last hour of trading moved under the price level indicator – perhaps indicating weakness for tomorrow?

Trading Strategy:

There are no solid reasons to assume a trend in either direction.  Our trading strategy is to wait until a direction can be identified before considering new positions.