Technical Analysis | Stock Market Timing Signals | Top Stock Picks

Stock prices took another drubbing today even as GDP results for the fourth quarter came in much better than expected – another example of buy on the rumor, sell on the news.  Investors and traders are betting that GDP growth can’t be sustained at the 4^th quarter rate.

Technology and commodity shares led the way down for the second session in a row.  The NASDAQ is now at the lowest point since Nov 30 and lost almost 1.5% today while the Dow lost a little more than 0.52%.  The broad market was off by about 110 points or about 1% of value.

Trading was a disaster in January with the market losing almost 400 points or about 3.5%.  The PSAR indicator on the monthly chart is flattening and the danger of the monthly chart moving to a bearish trend is certainly increasing.

The weekly chart has shown that prices have fallen below the 11,000 support level which is also the highs set in trading last October.  The price momentum indicators are all weakening with the CCI almost below -100 which is clearly bearish territory.  The stochastic and MACD are both heading towards the basement.

On the daily chart, prices have dropped below the consolidation area that was built up in action through Thursday of this week.  Prices are just a little below the 11,000 support level so we may see an upward bounce in next weeks trading as a potential consolidation occurs around 11,000.  If prices head down on Monday this could accelerate a more prolonged downward move.

Trading volume today was elevated as it has been on all the down days during January trading.  Today’s trading volume was the highest of the year and coming on a down day in prices is especially important.

Trading accelerated at the opening of trading today and it appeared that prices would push higher but prices turned around during mid-morning trading, fell to right before lunch were a small recover occurred.  After lunch, prices dropped precipitously all the way to the close of trading.  The last hour of trading created a new low and an indecision candlestick.

Trading Strategy:

Investors and traders should consider new short positions on days when prices are falling.  Be aware that a bullish bounce is still not impossibility.

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No real earth shattering news today that was likely to drive the market in either direction.  News consisted of the continuing hand-wringing about the banking sector and the possibility for Bernanke’s second term.  A weaker-than-expected report on the housing market didn’t help.

With the CCI dropping below the zero line in today’s action you could say that a weekly downtrend has been confirmed.  However, we don’t call trends on middle of the day market action and we don’t call weekly trend changes in the middle of the week either. 

On the other hand, the general positioning of prices on the weekly chart should be part of any trading strategy, and right now a downtrend seems inevitable on a weekly basis.  

On the daily chart, today’s trading created a topping tail candlestick which means as prices moved up they brought out more sellers than buyers.  It is possible that the market may eventually rally from this level which will set up the short sale environment we’ll be waiting for.  In situations like these it’s frequently better to wait for the market to come to you.

All three of the daily momentum indicators are bearish but appear to be pointing towards a bullish bounce.

On the 30 minute chart you can see the price increase at the opening that brought sellers into the market.  Prices dropped in late morning trading to the open of the day.  Prices then moved up until the last hour of trading when some profit taking occurred.

Trading Strategy:

It still appears to be a little early for short positions.  What we are looking for is a consolidation at this level at least in order to justify short positions.  Short positions are then best entered at a break-down from this consolidation level or after a bullish bounce.

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.  

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.  

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.

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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.