Technical Analysis | Stock Market Timing Signals | Top Stock Picks

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.  

The Fed announced that low interest rates are here to stay until at least 2011.  That announcement wasn’t enough to keep the markets win streak intact.  Traders also had to contend with a rise in wholesale inflation and flat earnings from GE.

Also, bank shares led the way down today but the damage was contained to approximately half of yesterdays gain, but on slightly increasing volume.

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

On the weekly stock chart, prices are appearing still flat for the week but with more than half the trading week remaining things could still change either way.  The stochastic and CCI are still pointing up with the MACD is indicating just absolutely nothing in direction.  This is still a market that could move in either direction.

The daily stock chart shows the drop in prices that still held above the resistance level of 11,250.  Today’s action finished with a bottoming tail but both the stochastic and CCI reversed direction to the downside.  The upward movement of the MACD seems to have stalled somewhat.

On the daily chart prices dropped sharply in the first 30 minutes of trading, reversed right at the 10am reversal time to the opening price, then proceeded to lose value for the remainder of the day, with the exception of the last hour of trading. 

During the last 30 minutes of trading it looked like prices were going over the cliff.  But buyers jumped in pushing the average back up creating a sort of hammer at the close of the market.  This could potentially add strength to tomorrows open, we’ll have to wait and see.

Trading Strategy:

Aggressive traders could consider new positions during the market as long as prices are moving up and higher than the high made during the first 30 minutes of trading.

Prudent traders may want to wait until prices move up more before taking on new long positions.  

Either way, now is the time for caution.  Don’t be the farm on positions in either direction

Stock prices rose modestly on better-than-expected retail sales and consumer sentiment, but gains were limited by weakness in the strength of the US dollar and the technology sector.

Over this week of trading the broad indexes were fairly flat although the Dow Industrials did reach a new high – too bad the Dow only tracks 30 stocks!

Go to stock charts to access the charts referred to in this analysis.

Trading activities this week created a candlestick that is close to a hanging man formation.  Regular readers will recognize this formation as the same formation on the daily chart that started the current price consolidation between the 11,000 and 11,250 level.  The weekly stochastic, MACD, and CCI indicators were fairly flat, displaying little momentum up or down.

Stock prices on the weekly time frame are still at the support level of the up trending lower channel line so a rally from this level can’t be ruled out.  Prices are getting closer to the overhead resistance level at approximately 11,250.  A close above this level next week may jump-start this rally.  In anticipation of that happening we have sent 10 bullish stock picks to subscribers of the top stock picks email update.

On the daily stock chart, prices did indeed rally from the hammer formation from mid-week like I predicted in Wednesday’s technical analysis.  It remains to be seen if this 3 day rally will continue on Monday but if it does, prices could easily close above the 11,250 level, which would be an early indication that new long positions could be considered.  Market timing signals would then be solidly bullish.  In support of a close above the 11,250 level, the stochastic, MACD, and CCI are all showing a return to strength in upward price momentum.

On the hourly chart you can see that once again prices moved up briskly from the opening bell.  Late morning trading created a reversal that reached yesterday’s closing price.  A slow and steady rise into the closing hours of trading resulted in a return to the highs of the day and a modest increase of 47 points for the day.

Trading Strategy:

Prudent investors should not take any new long positions until a solid close has occurred above the overhead resistance level of approximately 11,250.  With this strategy in mind the earliest day to consider new long positions would be during Tuesdays trading.

Of course, the possibility exists that this consolidation could develop into a new down trend.  But the market is showing some early signs of strength that could re-invigorate this rally during next weeks trading.

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.

Stock prices dropped approximately 150 points within the first hour of trading, and then clawed their way back to the positive side, only to give up a net 43 points by the close of trading.

As discussed in yesterdays technical analysis post, today turned out to be a great day to sit and watch the market action.  Prices suffered a sharp drop at the opening bell – even though stock futures pointed to a higher opening.

So the caution indicator on the daily trend is still in place.  How about the weekly trend?

On the weekly stock chart the status has not changed much.  Prices are still near the PSAR and the CCI20 is still above the 100 line.  Both positions reflect a bullish market trend with continued vulnerability to a changing daily trend.  If prices on the daily time frame can mount a recovery it may lead to a renewed strength on the weekly chart.

Stock prices on the daily stock chart have formed what many technical analysts may refer to as a “hammer”.  Hammers usually form a short term bottom but there are several concerns with this particular candlestick pattern that may prevent a proper hammer interpretation.

First, the formation is not really at a significant bottom.  Because it has no real trend to reverse its usefulness as an indicator of a price low is in question.

Second, ideally a hammer would have a “shaved head”, which would mean that the open of the day would be the high of the day.  This condition is also not present.  So its significance as an indicator of a bottom is in question.

So on the daily time frame we would still want a bullish trip of the PSAR and the CCI20 remaining above the zero line to remove our cautious viewpoint of this market.

Looking at the hourly stock chart in a broader context, it appears that stock prices are forming a symmetrical triangle pattern.  These types of patterns are usually trend continuation patterns.  The configuration of this pattern seems to indicate that a price break-out of the upper trend line could potentially result in a rally of perhaps 400 points.

We’ll keep an eye out for a breakout and provide the technical analysis of any price break-outs as they occur.

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

For the complete daily trading strategy recommendations and updated market timing signals please visit the links shown below.