Technical Analysis | Stock Market Timing Signals | Top Stock Picks

The current excuse is concern about the White House’s bank plan, Fed chief Bernanke’s future, and China’s lending practices.

Stocks lost almost 250 points today, or a little over 2% of value.  Trading volume was not quite as high as yesterdays, but still elevated from average.  This is likely to spell the death knoll for a resumption of this rally, at least in the near future.

So what are we doing now?  Right now we are sitting this slide out until the market moves up on a bounce, and then we’ll likely take short positions.

Let’s take a look at the charts for some more analysis.

Trading in January now shows a net loss of about 200 points.  It appears that the so-called  “January” effect – documented in many media outlets – may not be a valid justification for new long positions.

On the weekly chart, prices have fallen and closed well below the lower trend line, and also below the PSAR indicator, so the weekly chart is appearing to be entering a down trend.  The CCI is close to dropping below the zero line – and we really need these two events to occur for a confirmation of a new downtrend on the weekly time frame.

The daily stock chart is a disaster.  After a week of ratcheting back and forth at the top, prices have finally broken down and closed solidly below the prior low set in December.  On their way past the prior highs of Nov and Dec, the price action didn’t even pause.

Our momentum indicators are clearly bearish.

On the 30 minute chart, prices tried to hold a little below even for most of the day.  However, when traders returned from lunch it’s obvious that selling was the object of the day.  Prices fell sharply for the remainder of trading with the last hour of trading closing near the lows of the day

Trading Strategy:

If you were following the trading strategies described here then you probably managed to get out of profitable positions with most of the profit intact.  Any tightened stops were likely stopped out over the last few days of trading.

Next week I anticipate we’ll be watching for an opportunity to take short positions in this market.  Aggressive short traders may consider new short positions if the market continues down on Monday, however, the market is extremely extended to the downside so a prudent strategy would be to wait for a bounce back up to overhead resistance.

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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.

Weak global markets, a rising dollar, falling oil and gold prices, and some disappointing profit news from 3M, McDonalds, and Kroger, all contributed to a sharp drop in stock prices today.  Also in the background is a drop in consumer optimism regarding the future of the economy and President Obama’s lowest approval rating so far in his presidency.

I’ve discussed the weak technicals many times during the last 2 or 3 weeks, are we seeing the start of a meaningful trend reversal? 

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

On the weekly stock chart I mentioned yesterday that the upward momentum was continuing to decrease.  That trend continued today.  All three indicators are moving to the bearish side with the Stochastic already significantly bearish, the MACD just starting to roll over, and the CCI dropping well below the 100 level.

My favorite indicator though, the price of the broad market itself, is still above the 11,000 level and in reality has not shown the type of downward move I would like to see on the weekly time-frame to call a solid reversal at this point.  Still, the week is young yet with only 2/5 of the trading week in the history books, stock prices could easily fall at a faster rate.  I’d expect a close below the 11,000 level will really get the bears to come out from hibernation though.

The daily chart is where you can really start to see the damage accumulating.  Prices dropped almost 110 points on the day; most of the drop came at the opening which we’ll see on the hourly chart.  Stock prices dropped below the PSAR indicator today which would normally be a sign to consider new short positions IF the weekly chart was confirming the same weakness.  So until the weekly chart and the daily chart agree, shorting this market should be left to aggressive or very active traders.  Prudent investors should remain on the sidelines.

The daily chart clearly shows the drop in stock prices from the opening bell.  Prices tried to recover through the morning hours, but gave up the ghost right before lunch, and then fell throughout the day.  Prices firmed a little in the last hour of trading which might create a bounce in tomorrow’s action.  But don’t expect any bounce to last long.

Trading Strategy:

Prudent investors should not take any new long positions.  Until the weekly trend and the daily trend agree it would be wise to sit and watch from the sidelines.  Don’t worry about missing a downward move, this market appears to be sufficiently overbought that safe profits will be made on the way down.

Aggressive and active traders should consider shorting the market with the Contra-ETF’s that are sent to subscribers of the stock picks email.  Only consider new short positions if the market is lower than the low made in the first 30 minutes of trading, moving lower, and prior to 1pm market time. 

Remember – Contra ETF’s are purchased long to take advantage of a downward move.  Prices on Contra ETF’s go up when the market goes down.

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The broad market sheds another 37 points in the third down day in a row following at least an interim trend reversal.

Economic conditions in the technology sector, continued dismal employment reports, coupled with concerns over retail sales during the holiday season contributed to a growing unease about the strength of any economic recovery.  Many analysts are now expecting a flat 2010 instead of an expansion of economic growth.

Let’s take a look at the attached charts for a technical analysis and market timing wrap-up for the week.

The weekly chart is looking vulnerable to further price drops.  It is clear that prices are having trouble moving significantly above the 11,000 support level.

Study the number of times the weekly relative price level indicator has swapped back and forth between bullish and bearish over the last two months.  A market that can’t make up its mind is vulnerable to price drops.  There is also a growing sense that stock prices have moved up in this rally further than economic conditions warrant.

On the daily chart stock prices moved below the relative price level indicator early in today’s trading.  This movement coupled with the price momentum falling below 100 could contribute significantly to additional price drops.

Stock prices are now probably going to be affected by the support level of 11,000.  Remember that overheard resistance, once broken, now becomes a support level on the return trip.  So expect some bounces in the days to come.

If you recall, the 11,000 level was the cause of several reversals and consolidation events over the last few months as prices moved up – but also lost momentum.  You could expect this level to provide some strength in the near future.  If prices break below this level then the mid 10,500’s become the next support area.

On the hourly chart prices dropped fairly sharply at the opening of today’s trading.  Prices recovered a little during the last hour of trading to finish in the middle of today’s trading range.

While prices moved above the relative price indicator during the last hour of trading, the last hour also created a topping tail.  This could lead to further weakness for Monday’s opening.

Trading Strategy:

Our market timing signals are indicating a continuation of downward pressure on stock prices for the near term.  Our top stock picks contain a mixture of stocks to short and Contra ETF’s for retirement accounts and traders who are not comfortable shorting stocks.

New short positions and Contra ETF positions should be considered on market down days.  Markets down days are characterized by prices being down after 10am market time and heading lower.

In a full confirmation of the Hanging Man candlestick charts created during the last two days of trading, the broad market shed 163 points or approximately 1.45% of value.

Ever since Monday’s sharp price increase we have felt bad about getting stopped out of the market with a profit on Monday, however, we feel a little better about it today!

Our technical analysis appears to have saved us again because today’s trading gave back all of Mondays gain and came just 6 points away from tripping the price indicator to a bearish mode. 

See the daily and hourly charts attached to this update to view today’s market action and market timing signals.

On the daily stock chart the price momentum indicator fell sharply below 100 to a level of 66.34.  This indicator is used to determine the movement of stock prices from the normal range. 

Just like any other indicator, the values are used for a confidence level, not a firm prediction of what may or may not happen.  However, the price momentum dropped from what is considered an oversold condition in today’s trading.  This usually indicates a return to – and frequently below – the middle of the current trading range for stock prices.

The price momentum when coupled with the price level creates a strong indication of the most likely direction of stock prices in the short term.

Stock prices narrowly missed tripping the price indicator to the downside.  If prices drop in tomorrows trading below the 11,030 level, then both the price momentum and the price level indicator will be bearish.  Prices need to drop 70 points from todays close to trip this indicator.  This may occur just with price volatility even if prices close at the same level as today.

On the hourly chart it’s clear that most of today’s sharp decline occurred during the first hour of trading.  The remainder of the trading day was spent around the lows created during the opening hour.  The last hour of trading created a small recovery off the days low.

Trading Strategy:

If the market opens down tomorrow and continues down after 10 am market time, traders should consider new positions in the Contra ETF’s and short selections provided in our top stock picks email alert.

Prudent traders should wait until the price indicator is tripped to bearish before taking new Contra ETF or short positions.

We’ve suggested that you take a cautionary approach to this market because of the last two hanging man candlestick charts and now today’s confirmation.  Do not consider new long positions until the trend reverses to the upside again.

In a display of weak follow-through strength, stock prices jumped from the opening bell, added over 150 points to the broad market averages, and then finished the day with a small loss.

Most of the focus today was on the Fed announcement.  The Fed announced that the target interest rate would continue to be essentially zero for the foreseeable future.  Even though the Fed claimed to see glimmers of economic recovery, the fact that interest rates are going to be kept at zero seemed to reduce the positive assessment of the “recovery”.

Does today’s action mean you should jump back into this market?  Let’s take a look at the stock charts for an in-depth technical analysis.

On the weekly chart the 10,500 support level continues to support trading.  The CCI(20) is still positive at 46.44 but stock prices remain firmly below the PSAR indicator.  This configuration still casts a shadow on the direction of stock prices.

On the daily stock chart, prices jumped above the PSAR indicator in early morning trading.  Today’s trading action has created a candlestick with an extreme topping tail.  This topping tail may lead to weakness in tomorrows trading so standing aside until price direction is demonstrated continues to be a good strategy. 

The daily CCI(20) has moved above -100 to -92.55, so some strength may be returning to the market, but prices have a long way up to confirm any return to an uptrend.

On the daily chart you can see the gap up at the opening bell until the correction at mid-morning.  The rest of the day was essentially a consolidation until the Fed announcement was issued.  Evidently, traders did not like what they heard from the Fed.  The last hour of trading eliminated all of the days gain – including the opening gap.

Usually a gap in prices will create an area of support.  For prices to close the opening gap in one time period is a demonstration of weakness. 

Trading Strategy:

Based on the last hour of trading there is a high probability that tomorrows trading may challenge the 10,500 support level.  If prices break and close below this level, that would create evidence to support taking positions in Contra-ETF’s.

If prices recover and move up from here it would demonstrate a continuing consolidation activity.

Either way, our suggested trading strategy is to sit on the sidelines and wait for a more complete picture of the direction of stock prices.    

Perhaps the stock market got spooked by Halloween? October is now in the history books as the first losing trading month in the last 8, with a monthly loss of almost 3%. The fact that Octobers trading created a topping tail candlestick is not a good sign.

Perhaps it was the recent dismal jobs report, or the foreclosure rate that triggered today’s sharp fall in prices. It really doesn’t matter what the cause is, what matters is that you can profit from trends and market timing and that is the purpose of this web site.

We’ve had the caution light flash on an off over the last few weeks. Over the last trading week we’ve suggested taking profits off the table and just sitting on the sidelines for a while. If you had followed this strategy you’d be ready to take advantage of a further fall in prices which is what currently appears to be in the wings.

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

On the weekly chart, today’s action put prices below the PSAR indicator. This is the first indicator of a change in trend from up to down on the weekly time frame. Our confirming indicator, the CCI(20) is currently 62.88. As subscribers will recognize, the CCI(20) needs to go below zero to confirm a trend change.

Stock prices are going to test the intermediate support level at about the 10,500 price level. If prices fall below 10,500 the next support level of approximately 9,750 could come into play.

On the daily chart, stock prices continued their downward move after a sharp rebound yesterday. It’s been a rocky ride over the last few days with wild price swings as the market sorts out its next trend. The daily CCI(20) is now well into bearish territory and is confirming the downward trend in prices that started with prices dipping below the PSAR indicator 8 days ago.

On the hourly chart you can see that prices fell from the opening bell and fell throughout the day. The last hour of trading swung wildly up and down with the lows creating a parallel down trending channel line. It will be interesting to see how Monday’s trading will contend with the 10,500 support level.

Trading Strategy:

Our daily stock picks that we provide to subscribers of the top stock pick service are mostly contra-etf’s. Contra-etf’s are designed to increase in price as the stock market falls. However, the broad market may be a little extended on this down move right now to suggest positions in Contra-etf’s at Monday’s opening.

However, if Monday opens lower and continues lower, new Contra-etf’s should be considered.

If the market shows strength on Monday, traders should wait until the strength wanes before entering new Contra-etf’s. Watch the hourly chart and the daily chart for the optimal jump-in point.