Teach Talk Trade Day Trading & Technical Analysis

DOW Directions 03-11-08 (Tuesday): A Daily Technical Analytical View of Stocks, Futures, Eminis and Forex for online and day traders.

DIA (Dow ETF): Retracement double bottom could spark rally.

Monday’s market extended its push to the downside.  The DOW has skidded over 500 points in the last three trading sessions and was off -153.54 on Monday.   The market has continued to slide and is testing the lows of the year (which occured on January 22nd).

The daily StoRSI, our momentum oscillator, penetrated its downside target early last week.   Every day that the StoRSI remains under its lower trigger level is another day closer to a recovery rally.  This market is set up to make a “dead cat bounce”.   Typically, the momentum oscillator moves quickly form top to bottom and then back to the top again.  Extended periods of time above or below the triggers signal periods of rally or decline.   The StoRSI has continued to skid along its lowest level  for the last week and we’ve seen an a week of extended downside activity.  Some type of rebound is now overdue.  Nothing goes straight up or down forever.

The T8 (maroon line), our moving average that defines trend, continues to gain a steeper angle to the downside.  This is a negative sign.  With that said, as price drifts away from the T8 and creates a large distance between the two (price and the T8), the tendency is for price to revert to the mean (T8).  We haven’t seen this type of distance between price and the T8 since the low of January 22nd.

Monday’s candlestick was another black candle that holds no significance.  Candles draw patterns of supply and demand.  These supply and demand patterns have a high degree of predictability.  Unfortunately, they do not draw patterns everyday and such was the case on Monday. 

***Volatility Alert:

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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