The Rogue Investor » trend

Markets retreat to averages; Inverse head and shoulders possible

Alex — Fri, 30 Jul 2010 07:17:16 +0000

The S&P 500 is testing trend line support as it pulls back to the 50 and 200 day moving averages. Today, volume popped and prices closed just below the middle of the range.

Overall, things are looking bearish after we failed to move above a previous level of resistance as seen in the following chart:

The resistance and support are converging, creating a turning point.

Despite the slight jump in volume today, we have seen the market drift with only one day of above average volume in the month of July. Another interesting point is that this is the first time since April that the S&P has spent more than a couple days above the 50 MA.

It’s worth noting that we could possibly be seeing an inverse head and shoulders pattern:

A possible pattern forming is the inverse head and shoulders.

If we get a boost higher off the moving averages, this could be a legit pattern and we could see the head serve as a bottom. Check back for more.

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Volume floods markets, Monday’s session very important

Alex — Mon, 28 Jun 2010 06:41:49 +0000

Friday’s session has set up Monday as a pivot point for the future of the market’s direction. The S&P 500 is near the support line at 1070 and there is narrowing room for advancement before resistance is met.

Above average volume shows an increase in professional trading.

The Dow, NASDAQ, and S&P 500 were all basically flat on above average volume on Friday. Each index finished in the middle of the range which is a bullish sign as they each are near support.

Monday will give us a better idea of where the market is heading. My best guess is that we will get a bounce higher and continue in that direction until we run into resistance around 1080, 1085.

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Markets Take First Hit, Correction Possible

Alex — Sat, 20 Mar 2010 22:49:14 +0000

Above is a long-term chart of the NASDAQ. I’ve decided to focus on this exchange because it is the market leader among all indexes.

When considering the health of the market, you should take a look at both the short- and long-term charts to get a more complete view.

Currently, the NASDAQ is looking pretty healthy in the long-term. We are only a few percent off the highs from last year and have rallied an impressive 87% from the bottom in early 2009. We recently moved about a major resistance level and have a strong trend line of support to fall back on.

Below is a short-term look at the NASDAQ:

This chart shows a bit of a different story from the long-term view. The market has been trading in a widening channel as the corrections and rallies have been becoming more volatile.

There are two main things to consider from this chart. First, we are near the top of the channel and second, we saw the first major distribution day in around a month.

IBD credits some of the volume spike to “quadruple witching,” which is the quarterly expiration of futures and options. Regardless, I think this is a big hit to the market after a blazing hot rally in which down days were a rarity.

In the short-term I am bearish considering these two factors. Long-term, though, I see no signs of the rally stopping.

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Correction Reaches Breaking Point

Alex — Mon, 01 Feb 2010 04:52:13 +0000

With February upon us, we have to wonder how much farther the market will fall. The S&P 500 is right at the trend line support levels and the MACD is reaching extreme, negative levels.

One characteristic that has got me wondering if the rally isn’t over for good is the size of this correction. Currently, we are down over 6.5% from the top. The last two pullbacks were only 5.6% and 4.3%.

The trend is definitely bearish as each regression is getting larger. Moreover, the volume has been much more bearish this time over as we see large spikes on the down-days and a drop-off on the up-days.

On a weekly basis, the damage looks less severe. Volume was lower in the second week of the pullback but both weeks finished on the lows.

Overall, this next week will be critical. If the market can’t hold at support, we could see quite a drop. I expect to see a pop that fails to make new highs and provides us an excellent point to short. Keep your eyes open and sell good news.

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Holiday Trading: Stocks Drift Higher

Alex — Sun, 27 Dec 2009 19:05:16 +0000

Merry Christmas & Happy New Year!

As expected, volume decreased over the last 4 sessions with most investors on vacation. We can see on most of the major indexes that the Smart Money made their final trades for the year on the 18th as the volume was enormous.

Over this light trading, the markets drifted higher and even broke out of the top of the trading channel. Most surprising for me is that the Nasdaq moved an astounding 3.35% higher. Also, the Russell 2000 advanced 3.85%.

While we can’t immediately dismiss this move, I don’t buy it until we get a full day of full volume trading. If the market continues its rally after the professionals return, who knows how high we will go.

I do think that we are in or near a hazardous situation in the markets. It seems like the market has gone up just enough in this latest rally that investors who have missed out on the gains so far are jumping in taking new long positions. This could be the perfect time for the Smart Money to dump their shares to these investors.

In this situation, these personal investors would be described as “weak holders” in VSA. This means that they are on the wrong side of the market and could easily be under pressure if the market changes trend.

If this is the situation, we could find the perfect storm of professionals and personal investors dumping their shares causing a rapid decline in the markets.

Overall, we will have to watch Monday’s session to get a better idea of the health of the market.