Technical Analysis | Stock Market Timing Signals | Top Stock Picks

Stock prices pulled back from the overhead resistance in a fairly consistent down day for traders.

In a not-unexpected move, the overhead resistance level referred to in many posts on this blog had an effect on traders today.  Will this reaction finally turn the trend as many have been predicting, or will prices consolidate at this level in preparation for another run at the 11,250 level?

There is certainly evidence that prices may have moved ahead of the economic fundamentals.  On the other hand, there is a lot of money sitting on the sidelines. 

Let’s take a look at the technical analysis of the current situation to determine the best course of action.

On the weekly chart, prices moved above the PSAR indicator earlier in the week, although this will not officially change our weekly market timing signals until next week.  With one day in the trading week remaining, the weekly candlestick looks like it is preparing to create a topping tail.  This may lead to further weakness in future trading days.

On the daily chart, stock prices fell 127 points today and closed just above the support level of the prior high set in September at the 11,000 level.  Prices will need to hold above this level to keep strength in the late stages of this year-long rally or our market timing signals will move to bearish in all likelyhood.

If prices fall below the 11,000 level then a bearish move below the PSAR level of 10,913 will likely occur before the next support level of 10,800 is reached.  The CCI(20) reversed its upward course today, dropping to a reading of 54.84.

Today’s price drop on the hourly chart has clearly displayed a bearish market tone.  The CCI(20) is clearly in bearish territory.  A bullish reversal on the hourly chart is necessary to renew this rally but perhaps not likely in tomorrows trading.  We’ll need to wait and see.

Trading Strategy:

Until strength returns to the hourly and daily charts, traders should consider taking profits where appropriate and tightening stops on positions that would be vulnerable to profit taking on the broad market indexes.

In addition, new long positions should wait until either this current move hits a bottom or until prices move above the overhead resistance at the 11,250 level.  The 11,250 overhead resistance level may prove stronger than the upward momentum remaining in this rally.