Teach Talk Trade Day Trading & Technical Analysis

DOW Directions 03-19-08 (Wednesday): A Daily Technical Analytical View of Stocks, Futures, Eminis and Forex for online and day traders.

DIA (Dow ETF): Market zooms with help from the Fed and technical double-bottom

Tuesday’s market rocketed up in anticipation of a Fed interest rate cut.  The market was not disappointed when the Fed cut rates by 3/4 of a percent.  Fed announcement days are always volatile and can trade in a wide range of prices.  Tuesday’s range was all upside after most indices posted double bottoms on Monday.

The daily StoRSI, our momentum oscillator, has hooked back up and the chart is now demonstrating the wild volatility that we have witnessed during much of the last few quarters.  Just in the last two weeks, we have seen the market crater, rally, decline with gusto and then rally again (last two days).  We are experiencing record setting type days (intraday movement), yet we are going nowhere in price.   We see that movement occuring in the StoRSI (up, down, up).  The waffling in the indicator is reflected in the market movement and makes discerning direction a difficult task.

The T8 (maroon line), our moving average that defines trend, continues its downward direction. We believe that when price retraces to the T8 (our trend) that there is a high probability that if the trend is down, price will be resisted.  Of course, this strategy was not successful on Tuesday.  Occasionally, price will open above a down-sloping T8 and not go immediately down.  It is important to note:  when the three moving averages, represented on the chart, superimpose on one another, usually there is a rapid directional move in the near future.

Tuesday’s candlestick was another large white candle.  This white candle has little significance…although, white candles are always welcome if a trader is looking for upside potential.

***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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