Teach Talk Trade Day Trading & Technical Analysis

04-29-08 Market Directions: A Technical Analytical View of Stocks, Futures, Eminis and Forex for online and day traders.

Last November, the T8, our moving average that defines trend, turned negative.  The market began to slide and continued down until mid-April (when the T8 turned positive).  After the market turned down, it gave traders three opportunities to sell weekly openings, above the down-sloping T8 on three Monday’s in December (13,649; 13,540; & 13,423).  The market continued to slide and punched down to under 11,500.

Above the candlestick chart is our momentum oscillator, the Stochastic RSI.   As we can see, the StoRSI made a bottom in late January and with the exception of testing that bottom in March (and creating a positive “double bottom”), the market has gained substantial points (+2300) since bottoming out.  Unfortunately, the momentum oscillator has now traversed to its upper levels and the market is now in danger of retracing once again.

The T8 (maroon line), our moving average that defines trend, is gaining positive inclination.  Price has now drifted higher and is substantially above the moving average.  As in most cases, “price tends to revert to the mean”.  Usually, if price spurts up or down and gains space between itself and the moving average(s), price usually draws back to these averages.  

 Altough the “double-bottom” bodes well for creating a floor in the market, don’t be surprises if the market pulls back over the next month.  A retracement to the T8 would set up a buying opportunity in the future.  In the meantime, “keep your powder dry”.

***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 volatility will continue and we believe it is here to stay.

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