The stock market achieved another modest gain today, making today the fifth straight session of price increases – although all of them on lower volume due to the holidays.

This is also the time of year when a lot of effort is expended on advertising predictions on where the market will be this time next year, what the interest rate will be, who will be employed & who won’t, 10 stocks you just have to own, 10 stocks you should sell now, etc, etc.  After a while – like 5 or 10 seconds – it gets kind of tiresome.  

The truth is that very few predictions will be right or even right enough for you to profit from.  Most of their predictions will be as off the mark as our government prognosticators when they predicted a globally catastrophic swine flu pandemic.  

That prediction was only designed – from what I’ve observed – to create sufficient panic to ensure the transfer of the most amount of money from our pockets to the drug companies’ pockets.  The phrase “just follow the money”  certainly comes to mind here doesn’t it?

So be careful about who you listen to.  In the meantime, we’ll continue to react to what the market “does” rather than what the talking heads “think” it will do, or “should” do. 

 It’s turning out to be a much better strategy.  Check out the results of the model portfolio which we will close out this year and start tracking each year separately starting in 2010.

From 8/16/06 through the last sell transaction on 11/13/09, the market timing portfolio is up 170% while a buy & hold portfolio during the same time period was down 14%.  Not bad for trading just two stocks!

Let’s open the stock charts for some technical analysis and market timing insights.

As mentioned above the market eked out a small gain today.  On the weekly chart barely anything moved so there isn’t much to conclude from this time frame.

On the daily chart the story is about the same.  However, the daily chart is starting to look a little top-heavy to me.  The CCI and the stochastic indicator is starting to roll over which could point to some rough days ahead. 

No-one can know ahead of time how high the MACD will go into bullish territory, but once it moves across the zero line it frequently indicates that about ½ of the current move may be over.  So caution is certainly warranted for new positions.  At this point a return of prices to test the break-out at around the 11,250 level cannot be ruled out and may be fairly likely.

On the 30 minute chart prices once again bolted out of the gate at the open but left a bearish topping tail candlestick.  The bearishness of that topping tail lasted most of the trading day except for the last hour of trading when prices managed to move modestly above yesterdays close.

This last hour of trading also moved prices above the PSAR indicator and the CCI, MACD, and stochastic indicators to a bullish looking position.

Trading Strategy:

If the last hour of today’s trading can help influence tomorrow, then tomorrow may be fairly strong.  But nothing is certain and caution is still the watchword in this market.

Prudent investors should consider new long positions in markets that are going up.  Prudent investors should stay on the sidelines in markets that remain flat.

Aggressive investors should consider playing the market to the upside.

See our top stock picks email for bullish candidates.

The Federal Reserve re-iterated their statement that interest rates will remain unchanged for the foreseeable future, but they also voiced the opinion that economic weakness will persist for some time.

Stock prices were sharply up prior to the Fed announcement and retreated during the afternoon hours to close up a modest 25 points. 

Still a gain is a gain and we’ll take it.

Technical analysis of our standard stock charts continue to point to a bullish continuation of our market timing signals - although some caution is mixed in based on today’s trading action.

Today’s trading created a candlestick with a topping tail.  Many times this can presage a fall in prices, especially if the bottom of the candlestick is located at the highs of the recent rally.  In this case the bottom of today’s trading is close to the support level of 11,250 so we’ll need to wait and see if the support will hold.

All three other indicators, the stochastic, MACD and CCI are either neutral to bullish.  Trading volume was a little less than yesterday which lessons any bearish tendencies of today’s action.

On the weekly stock chart, prices appear to be marking time, still at the support level of the lower channel trend line and the 20 day moving average.  The stochastic and CCI are moving up, while the MACD is still flat.

On the 30 minute chart, prices moved up in the morning, retreated a little bit during lunch time, then fell in the afternoon.  The last hour of trading dropped a little bit and then recovered to the level of the opening gap.

This trading action created a gap or a trading “window” that may provide additional support on the 30 minute chart for tomorrows trading.

Trading Strategy:

Caution is still warranted on this market until the current support level proves strong enough to support a rally from here.

As suggested yesterday, 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.  

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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.  

A potential default on debt owed by Dubai World sent equity markets into a tailspin across the globe in the last two days of trading. 

Direct impact today on the US stock market was a price drop of 200 points as measured on the broad market.  The Dow Industrials shed 154 points, the Nasdaq 37.61 and the S&P500 lost 19.

Although the current consensus appears to be that there is little direct exposure to Dubai Worlds default risk, US financial institutions could take major hits.  The major problem once against is that no-one knows for sure what the exposure might be in total.

If US banks are vulnerable, the ripple effect across the US economy could potentially push a fragile recovery backwards.  Couple this risk with the current mentality that the US stock market is overvalued and this may be the catalyst to trigger a larger correction instead of a consolidation.

For an in-depth technical analysis and market timing lets review the stock charts for the end of the trading week.

On the weekly chart (attached), the weeks trading has produced a second topping tail candlestick. This week’s stock market action has closed with a small loss compared to last week.  The price momentum indicator appears stuck at the mid 90’s level.  The relative price indicator is closing the gap on current prices. 

It remains to be seen what next weeks trading will bring, but based on this weeks chart, the momentum has lost a lot of steam over the last 8 or 9 weeks.  On a positive note, stock prices are reaching the lower limit of the upper trending price channel.  So if we are going to see a resumption of the uptrend, we should not have much longer to wait.

Even though this weeks trading was shortened due to the Thanksgiving holiday, trading volume has been dropping.  This could be an indication that buying interest is drying up which could lead to further price erosion in the future.

On the daily chart (attached), the 200 point price drop during today’s trading is painfully obvious.  The price momentum indicator has fallen to an anemic 29.37.  In addition to the price momentum drop, its prior peak was significantly lower than prior peaks as was the recent price high.  Neither of these are a good sign for further price increases in the short term.  Stock prices on the daily chart also fell sharply below the relative price indicator on today’s action.  In addition to the trading volume on the weekly chart, trading volume on the daily chart is dropping.

However, like the weekly chart, stock prices on the daily chart are reaching the lower trend line of the upward trending channel.  If a turnaround in prices is going to occur we should not have long to wait.

The hourly chart shows the sharp price drop during the opening hour of trading.  Prices tried to recover during the balance of the day but reversed in the last hour of trading.

Trading Strategy:

The weekly, daily and hourly charts are all weak.  Prices are at a level on the weekly and the daily chart that a turnaround may be likely.  However, even though prices may be at a support level, there is scant evidence that this support will hold.  It’s likely that more price drops will occur.  We will remain in cash until the upward trend resumes or a new downward trend is validated.

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If one hanging man candlestick is a technical analysis caution sign, do two in a row indicate more or less caution?

Yesterday we discussed the hanging man candlestick, what it could indicate, and its implications for traders and market timing signals.  Today’s trading created almost a carbon copy of yesterday’s candlestick with two slight differences. 

Today’s hanging man had a slightly longer topping tail and the closing price lost 11 points instead of a slight gain that was created yesterday.  However, these differences are not enough to rule out today as a hanging man pattern.  They also are not capable of confirming yesterdays hanging man as a reversal candlestick pattern.

On the daily stock chart (attached to this email) you can see the CCI(20) remains in the oversold condition at a value of 105.03.  Stock prices remain above the price indicator so from a strictly numbers viewpoint the daily chart is still bullish.

From a technical analysis viewpoint, traders should be very cautious in taking on new positions until the current consolidation resolves itself to either the up or down direction.

As we reviewed in yesterday’s technical analysis, the hanging man candlestick really needs a confirmation day prior to taking new positions based on any reversal indicated.  The best confirmation is both an open and a close lower than the prior days close.  Today’s open was right about the same as yesterdays close but today’s close was definitely lower. 

But was it lowers enough to justify confirmation?

Because another hanging man was created today, the close of todays trading was not low enough to confirm Tuesday’s hanging man.  So going forward we are still looking for a confirmation on this reversal pattern before new positions are recommended in either direction.

On the hourly chart (attached to this email) you can see the price drop that occurred during the morning hours with a fairly strong price recovery during the last hour of trading.  Whether this strength flows into tomorrows trading or not will determine our trading strategy.

Trading Strategy:

Current trading strategy depends on tomorrows trading action.

If prices move up above the highs of the last 3 days and prices continue to move up after 10 am market time, then new long positions should be considered.

If prices drop tomorrow, then we will evaluate the confirmation of a trend reversal after the close of the market.

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.

Even strong earnings from software giant Microsoft and on-line retailer Amazon was not enough to prevent stock prices from returning all of yesterdays gain, and then some.
 

Our market timing trading strategy from yesterday of recommending caution on taking new long positions until stock prices break through the resistance at the 11,250 level was right on the money today.  What’s worse, stock prices have appeared to have given up attacking the resistance at 11,250 and are now working on the 11,200 level.

Is more downside movement of stock prices in the works?
 
Let’s view the stock charts for a more insightful technical analysis.
 
The weekly stock chart has traced a second indecision candlestick in as many weeks.  But from a weekly perspective the time frame is still in a bullish status.  This is shown in the table below for next weeks trading.  

The weekly CCI(20) is still above 100 at 109.80 and stock prices are above the PSAR indicator.  These levels support the argument that the weekly time frame is still strong.  

Let’s now review the daily stock chart for insights regarding a trading strategy.
 
On the daily stock chart the CCI(20) has fallen below the 100 level and now sits below 50 at 49.91.  This is halfway to a bearish crossover.  This movement may be the preparation for a new base or it may be an early indication for a switch to further weakness on the daily time frame.
 
Keep an eye on the CCI(5) indicator on the daily chart for a move above the zero line to indicate increasing strength.  If the market can gain some upwards momentum it may set up some excellent buying opportunities.

On the hourly chart prices have been weak for the last 7 trading days or so.  The CCI(20) is firmly bearish and prices are below the PSAR.  The last two trading days have demonstrated support at the 11,000 level.  However, the hourly stock chart is creating a descending triangle.

A descending triangle is predominantly found as continuation patterns in ongoing downtrends which is not the situation here.  So it remains to be seen how prices will develop or breakout of this triangle formation.

If prices drop below the support level of 11,000 then more price weakness should be expected.  If prices break-out of the upper triangle trend line then more strength should be expected.

Trading Strategy:

Thursday’s trading strategy is still valid – until prices can move above the overhead resistance at approximately the 11,250 price level then you should be cautious taking on new long positions.  If you have not yet taken some profits off the table and/or tightened stops in anticipation of further drops in the broad market then you should strongly consider doing so.

If prices drop below the 11,000 level next week it may create an opportunity to take positions in contra-etf’s to take advantage of price drops.  If that happens we’ll suggest the appropriate strategy to use. 

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Upbeat earnings from several Dow components and the announcement of a crack down on executive pay by banks that are receiving government bailouts created a move up in stock prices today.

However, yesterday’s loss was only half erased by today’s action.

With 4/5’s of the trading week now in the history books, the weekly stock chart appears to be creating an indecision week with stock prices remaining firmly in the middle of the weeks trading range.

The weekly CCI(20) remains in the bullish range and stock prices remain above the PSAR indicator.  If the weeks’ trading was complete, the weekly trading time frame would remain bullish.  We need to wait until after the close of the market tomorrow to make this assessment on market timing.

On the daily stock chart the CCI(20) is falling and its value is now at 70.38.  Our timing strategy uses the CCI(20) as a confirming indicator so although it remains bullish it is indicating a potential future weakness.

Stock prices on the daily chart fell below the PSAR indicator yesterday and remain below the PSAR today. 

As expected, stock prices appear to have reacted positively to the11,000 support level.  A normal reaction to this support level may have become more pronounced due to positively perceived earnings news and presidential proclamations regarding bankers’ income.

More consolidation around the 11,000 support level is likely to define the short term probability of price direction.  If stock prices fall through 11,000 then more weakness should be expected.  If stock prices move up from here and continue to move above the daily PSAR then a renewal of the upward rally should be expected.

On the hourly stock chart you can see the drop in prices that occurred at the open then the recovery throughout the day.  The last hour of trading produced a topping tail that may create some weakness for tomorrow.

The CCI(20) on the hourly chart has moved into bullish territory and prices moved above the PSAR indicator during the last hours of trading.  If this strength continues and this momentum flows into the daily time frame it could produce the strength needed to create a bullish confirmation on the daily time frame.

Trading Strategy:

A downturn in stock prices today has produced a topping tail so far on the weekly chart. 

Yesterdays trading strategy suggestion that you should only consider new longs on up days would have kept you out of the market today.  Remember that up days are referred to as stock prices being up from the open and moving up solidly after 10:30am market time.

Are more down days like this to be expected for the remainder of the week?

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

With two days of the trading week complete, stock prices on the weekly chart have so far created a topping tail.  Even though the weekly chart swung to a bullish confirmation this week trading has so far been choppy with no continuous move up or down.

As noted in yesterdays post, stock prices appear to be reacting to the overhead resistance level at about the 11,100 to 11,250 price level.  It remains to be seen if stock prices can move above this level quickly or a more protracted consolidation is in the works.

The CCI(20) and the PSAR indicator on the weekly charts continue to indicate a bullish trend.

On the daily stock chart the CCI(20) is falling from its high of recent trading.  Stock prices are still above the PSAR indicator but are very close to switching to a bearish stance.  If prices can move above the overhead resistance quickly then this rally would likely continue very quickly to the upper trend line at about the 11,500 price level.

On the hourly chart you can see the bearish trend that started in this mornings trading.  Prices declined from the opening but have so far not created a new reaction low.  The last few hours of trading stabilized and now appear poised for a new move up.

The hourly CCI(20) is moving back up after moving to the bearish stance and a small move up in prices would send the PSAR indicator back to a bullish stance.

Trading Strategy:

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