Technical Analysis | Stock Market Timing Signals | Top Stock Picks

Technical Analysis, Market Timing, and Top Stock Pick posts are free on this blog but are delayed a few days. 

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.

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.

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.

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.

For subscription information to provide these updates at the close of the market each day – instead of a week after the fact – visit the subscription page – remember to enter the special code $1trial to get your 30 day subscription for just one dollar!