Teach Talk Trade Day Trading & Technical Analysis

DOW Directions 03-20-08 (Thursday): A Daily Technical Analytical View of Stocks, Futures, Eminis and Forex for online and day traders.

DIA (Dow ETF): Market roller coaster ride continues

Wednesday’s market peeled off -293 points after rocketing up during Tuesday’s Fed interest rate cut. The Fed cut of 3/4 of a percent caused the markets to rally on Tuesday, but reality set in on Wednesday and the market posted a very negative day. 

The daily StoRSI, our momentum oscillator, has turned negative once again.  This is the fourth directional change in the last week of trading.  If we examine the last five days of trading, we see a microcosm of the market:  wild volatility with little or no directional movement.   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 and now down again). 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.  The opportunity existed on Wednesday to short, once again, above the downsloping T8.  Traders that participate in this strategy are seldom disappointed.

Wednesday’s candlestick was a “bearish engulfing” candle. This black candle opened above the body of Tuesday’s candle and then closed below the pevious body.  It engulfed Tuesdays action.  When a bearish engulfing comes at the top of a recent range, it can point to a top and lower prices.

***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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