Teach Talk Trade Day Trading & Technical Analysis

Weekly Charts 12-13-07 (Thursday): An occasional look at important weekly technical developments.

ETF’s (SPY; DIA; QQQQ): End game for the indices?.

The three charts that are contained in this post are all ETF’s (exchange traded funds).  The DIA is a synthetic stock that tracks the DJIA (Dow Jones Industrial Average); the SPY tracks the S&P 500; and the QQQ is the synthetic stock for the NASDAQ 100.   Each of these issues are presented here in a weekly candlestick chart. 

The DIA is in the process of posting a dark cloud this week.  This is the same candle pattern that is repeats on the both the SPY and the QQQ charts.  Dark clouds are warnings of futures storms on the horizon.  Our trend definer, the T8 exponential moving average, has pointed down for over a month.  We constantly suggest selling when price hits or moves above a negative sloping T8.  That’s exactly the type of conditions we see in all three of the charts.  If the CMO, our momentum oscillator, turns negative, the Dow will have tough sledding through the beginning of the winter months.

The SPY has additional problems when examining the weekly chart for clues about future direction.  Not only does it have to contend with the large dark cloud, the momentum oscillator has already turned down.   This is usually a very bad sign…especially in the weekly charts.  In weekly time frames, it takes a long time for a momentum oscillator to climb up or move down to its extremes.  The negative turn in momentum could mean that it will be a long time before the market continues on it’s upward path.

 The QQQ features the same negative dark cloud…looming its shadow over any attempts of future advance.  The negative hook in the Chande Momentum Oscillator is not a good sign for the QQQ.  The QQQ has been the strongest of the three indices that we are featuring.  After drawing three long wicks to the downside (blue circle), the QQQ rallied.  Unfortunately, the advance was met with a T8 that had just turned down and it has stopped the advance of price beyond the recent highs of late last week and early this week.  Unless the markets post stunning advances on Friday, we could see significant declines over the next few months.

 ***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 (in the Dow), 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. This volatility cycle is in its early stages and we continue to believe it is here to stay.

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