Teach Talk Trade Day Trading & Technical Analysis

DOW Directions 01-07-08 (Monday): A Daily Technical Analytical View of Stocks, Furtures, Eminis and Forex for online and day traders.

DIA (Dow ETF): A gap down turns into a freefall for the DOW.

The DOW was down -256.54 points on Friday.  After a day where the markets paused to catch their breath, on Thursday, the markets gapped lower on Friday’s opening and just kept falling throughout Friday’s trading session. 

The StoRSI, our momentum oscillator, closed under it’s trigger level (+10) at +3.28 and is now at it’s lowest level in three months.  This low reading usually signals an end to the downside momentum.  However, in extremely weak markets, the StoRSI can stay under +10 for extended periods.  Price should rally from this area, even if it a feeble attempt to rally, due to the oversold condition of the market. 

The T8 which was flat for a while is now accelerating to the downside. There is plenty of room between price and the downtrending T8. The market could easily rally back to the T8 if the current oversold condition is exhausted. The T8 is our preferred exponential moving average and it dictates our thoughts on the direction of the trend. Of course, the trend in the stock indices is currently down.

The candlestick formation posted on Friday was of no importance, but a big black-bodied candle is never a welcome site in an issue that we would like see moving up.   Until we see a favorable candlestick formation, we caution traders not to consider long positions.

During the third week in July, volatility returned to the major stock indices. For approximately four years, the markets have had low to very low volatility. This significant change has ushered in swings of 100, 200 & 300+ points, sometimes on a day-to-day basis. Stock indices tend to be either volatile, or not, for three to five years at a time. Expect continued volatility. The current volatility cycle has just started its volatile period. We feel this is the early stages of volatility and we continue to believe it is here to stay.

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