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Today’s market action moved another step closer to a trend reversal that I have discussed several times. Stocks plummeted today from the outset as concerns about China’s lending hammered commodities and the broader market. Additional reports showing a drop in manufacturing activity and a rise in jobless claims overshadowed improved earnings from Goldman Sachs. Additional price drops occurred in the afternoon as traders and investors considered President Obama’s announcement regarding additional regulations on the nation’s largest banks and financial institutions.
Total damage to stock prices today was over 200 points or almost 2% of value. Trading for the month of January so far is about even with Decembers close.
A quick check of the weekly stock chart shows that prices fell firmly below the lower channel trend line. Prices have not yet dropped below the PSAR indicator, but I suspect that it is only a matter of time before they do so, thereby creating another nail in the uptrend’s coffin. The weekly momentum indicators are all heading for bearish territory. Even the stoic MACD that has been flat since November is now showing life. Unfortunately it’s going in the wrong direction for long investments.
The daily chart shows the same type of initial indications of a trend reversal as the weekly chart, just what we need to suggest a shorting strategy. Prices dropped way below the lower trend line and closed at the lows for the day. Prices are close to creating a reaction low below the lows of late December 2009. The volume increase on yet another down day is continuing evidence of the big investment houses heading for the exits. All three momentum indicators are now in bearish territory.
In similar action to Wednesdays trading, the 30 minute chart of today’s trading shows most of the losses occurred in the morning hours. A downside gap in prices is additional evidence of institutional selling. Prices managed a small recovery from the hammer candlestick created at 1pm. From 2pm through the last hour, trading was all downhill.
Trading Strategy:
Continue to take profits and tighten stops on long positions remaining in this market. Do not consider new long trades until the market returns to an uptrend.
It is still a little early to consider short positions in this market although we are getting close. In order to justify short positions the weekly chart would need to be bearish (it’s not all the way there yet) and the daily chart would need to take a bullish bounce to a resistance level after closing below the lows set in late December 2009.
Weekly Daily Strategy for next market day based on price position only. Refer to technical analysis & market timing verbiage for further details. Week End Date Weekly Trend Market Day Daily Trend 1/22/2010 Up Fr Th Down Potential Trend Transition We Down Potential Trend Transition Tu Up New Longs On Up Days Mo Market Closed 1/15/2010 Up Fr Down Potential Trend Transition Th Up New Longs On Up Days We Caution Tighten Stops/Take Profits Tu Caution Tighten Stops/Take Profits Mo Up New Longs On Up Days 1/8/2010 Up Fr Up New Longs On Up Days Th Up New Longs On Up Days We Up New Longs On Up Days Tu Up New Longs On Up Days Mo Up New Longs On Up Days 1/1/2010 Up Fr Market Closed – Happy New Year! Th Caution Tighten Stops/Take Profits We Up New Longs On Up Days Tu Up New Longs On Up Days Mo Up New Longs On Up Days Technical Analysis, Market Timing, and Top Stock Pick posts are free on this blog but are delayed a few days.
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View information on the model stock portfolio and how it grew by over 170% over the same time period that a buy-and-hold S&P 500 portfolio lost 14%. No margin, options, penny stocks, commodities, or other high risk vehicles were used – just two well respected ETF stocks.
Get free, no obligation access to the real-time stock charts used in these posts.
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No CommentsStocks slumped from the opening today as China tightened lending practices and a stronger dollar slammed commodities which has been a leading sector in this rally. IBM dragged the tech sector down as traders picked apart yesterdays upbeat earnings report issued after the market close yesterday.Get the feeling the big guns are selling into strength?I sure do.Each recovery day is followed by profit taking right from the opening. In other words, it appears that institutions are unloading high priced shares at a meaningful top at just the time that retail investors get excited about the recent rally. This is a market that is vulnerable to more downdrafts and is not a market in which you should be taking large long positions.On the weekly time frame stocks are having a tough time in even maintaining prices above the lower trend line. Not to mention moving solidly up from the support level. Prices are just continuing to drift sideways and downward. With half of the trading weeks in the history books, a sharp move up in the next two days is needed to create upward momentum. That event does not appear likely.Even though the weekly CCI and the stochastic indicators remain in Bullish territory, the MACD is flat.Technical analysis of the daily chart unfortunately is drawing the same conclusion. Unless some powerful upward moves occur in the next few days, prices are likely to fall below the lower support trend line, the 20 day moving average, and the prior reaction high.What to watch for in this situation is either a break out to new highs above the 11,755 level or a fall below the prior low of approximately 11,387. Whichever one of these events occur first is likely to set the stage for either a renewing of the rally or a change of trend to bearish.Trading volume today was again increasing from the prior up day. All three down days this year have been on increasing volume – more evidence that big shops are selling into strength.All three daily momentum indicators are looking weak and pointing to lower prices ahead.The 30 minute chart certainly shows the mood of the market. Prices fell over 200 points during the morning hours so a bounce was likely at some point during the day. Sure enough, two hammer candlesticks formed, one in late morning trading and another right after lunch that set the stage for a small price recovery during the afternoon. The last hour of trading created some wavering in price direction. Prices ended up off the lows of the day creating a bottoming tail for the daily action.Trading Strategy:As mentioned above, this market looks ripe for more profit taking.A break-out above the highs for the year is necessary to justify new long positions in this market.A new low and a weekly change to a bearish posture are necessary to justify short positions.The suggested trading strategy in this environment is to remain on the sidelines, take profits where you have them, and tighten up stops to protect profits and prevent losses.
Weekly Daily Strategy for next market day based on price position only. Refer to technical analysis & market timing verbiage for further details. Week End Date Weekly Trend Market Day Daily Trend 1/22/2010 Up Fr Th We Down Potential Trend Transition Tu Up New Longs On Up Days Mo Market Closed 1/15/2010 Up Fr Down Potential Trend Transition Th Up New Longs On Up Days We Caution Tighten Stops/Take Profits Tu Caution Tighten Stops/Take Profits Mo Up New Longs On Up Days 1/8/2010 Up Fr Up New Longs On Up Days Th Up New Longs On Up Days We Up New Longs On Up Days Tu Up New Longs On Up Days Mo Up New Longs On Up Days 1/1/2010 Up Fr Market Closed – Happy New Year! Th Caution Tighten Stops/Take Profits We Up New Longs On Up Days Tu Up New Longs On Up Days Mo Up New Longs On Up Days Technical Analysis, Market Timing, and Top Stock Pick posts are free on this blog but are delayed a few days.
For a $1 trial of timely market timing updates and top stock picks emails sent to you after the close of the stock market on each trading day please visit our subscription page.
View information on the model stock portfolio and how it grew by over 170% over the same time period that a buy-and-hold S&P 500 portfolio lost 14%. No margin, options, penny stocks, commodities, or other high risk vehicles were used – just two well respected ETF stocks.
Get free, no obligation access to the real-time stock charts used in these posts.
View our free market timing signals , stock trading strategies , and stock trading forum at these links.