***** Technical Analysis (for January 24)*****
A few comments before today's TA.
Interpreting likely trend reversals on any timeframe is always problematic and the market will always tell the truth. One aspect of the market truth is what Bernard Baruch said when he was asked what the market will do next, and he said, "It will fluctuate."
An important lesson I've learned in over 20 years of trading is that many times a signal for swing or position trading tests one's patience when one gets too emotional or too arrogant about the next move. Balancing when the market is telling you that your trade and trend analysis is wrong vs. the market saying that it is not quite ready to validate the setup/signal is one of the most important lessons to learn, and typically makes the difference between the most successful traders and those that struggle.
By the way, the most successful traders do not make all or even close to all successful trades, but can make only 1/2 to 2/3rds profitable trades and use proper money/loss management strategies, which is the subject for another day.
In the week prior to Thanksgiving, some of the signals allowed for the market to top out and I was a bit early in starting to say that the top was in or nearly in, and then got more confident about a top for the next week. The actual top was the following Monday, intra-day, but I was not shaken out of my shorts, so I could be off in the timing a bit but still successful in the swing/position trades. (Swing trades for me are 2 days to 2 weeks, position trades typically 2 weeks to 2 months). Incremental trading for me is not only scaling in and out in terms of price but frequently, also time, so my timing does not have to be perfect, but some of my entries and exits will almost always be at the top and bottom.
Again, in very early January, I expected a modest rally in the Dow but it was stronger than expected, which can always happen, but once again my short trades became more successful a week later even though my timing was not perfect. You might ask why I didn't go long when it appeared that the rally would last longer and rise more than the 100 points I had thought.
I did cover some of the short positions (some of which were still in profits), and actually put a bit more into gold stocks as it was acting better for me (i.e. getting oversold on indicators but prices not moving much). But I was quite confident in my signals that we were only getting another technical rally (just like in November, which was invalidated by many technical signals such as the ROC then), and thus I kept most of my short positions and that signal (e.g. Summation Index, Money Flow)and setup were confirmed a week and half later than thought.
Gold has been an interesting trade. It has never setup perfectly for me in the 3 months I have traded the unhedged gold stocks, but it has setup fairly well a few times and setup quite well once, which was recently. The main setup has been the hourly stochastics crossing up from near 0% several times and from the dailies below 25% once, which occurred within the past few weeks.
Discerning the trend in the intermediate and long term timeframe is critical, even for those who are fast swing traders, because your odds of success increase when you trade with the trend. Thus, my view was that the best swing and position trades would be to short non-gold (i.e. regular) stocks on technical rallies, and go long gold stocks, incrementally, on setups (e.g. oversold indications) that provide a good risk-reward ratio, based upon my TA interpretation that the next major move(s) would be down. But I always remind myself that my confidence level is not going to be egotistical, but rather coming from evidence, and that if I am not humble and flexible in it, I will make major mistakes and lose money. The market will always punish those who think they know it all because it is the market that is all-knowing.
Now for Friday's TA:
There was no follow through on Thursday's rally as the market was weak early Friday morning with negative internals, thus giving a signal of more weakness. The trend is decidedly down now and barring a Herculean effort by the institutions, this market will only have technical bounces and rare technical rallies of more than 2 days in the next few weeks, in all probability, as technical indicators have turned negative and support levels have been breached.
The Dow 8250 level has turned from support to resistance, as has S&P 500 895 level. The next resistance for Dow rallies would be 8600, though that is not likely to be reached for some time.
For Friday, the Nasdaq TRIN was a negative 2.55, with a/d of 3/8, up/down volume 1/7, indicating serious distribution, on light volume of 1.6B shares. Remember that down days with negative up/down volume figures are not indicative of a waning of selling pressure unless they were preceded by panic selling and a very oversold condition, which is not the case now.
The Nasdaq MACD, DMI, ADX, Money Flow, and Acc/Dist remain negative while they were joied today by the Williams%R and CCI. Only the Aroon is neutral, and it too has weakened. The chart pattern for the Nasdaq and other major indices look very bearish.
The Nasdaq McClellan Oscillator fell sharply to -35 from -15, indicating that the index is likely to have at least 1-2 weeks of weakness from the bearish breadth momentum signal. The Summation Index has widening spaces between readings and the momentum does not reverse easily in the short term, and there is a risk of it declining for many weeks as the market could grind down once again.
The Nasdaq monthly stochastic is weakening and is barely crossed up now while the weekly is crossed down from high levels and has the potential for a severe downdraft and the dailies are low but the "d" is still high.
The NYSE TRIN closed at a negative 1.73, with a/d of 1/3, up/down volume 1/5, on 1.5B shares. The McClellan Oscillator fell to -50, so it is fairly extreme and likely to see a bounce unless panic selling takes place.
The VIX MACD is decidedly crossed up now and the VXN MACD just crossed up, signalling a trend of lower prices. The put/call MACD is very bearish. Advisors are still too bullish.
The failure of the Dow and S&P 500 to join the Nasdaq in making a new high in early December was bearish divergence, along with light volume rallies and weak accumulation indicators, pretty much portended that the market would fall sharply as it has.
The market is a little oversold now so if it could sell off early next week, it would probably trigger a bounce afterwards, but if the market rallies early to mid next week, then it will only delay the inevitable break of Dow 8000 and Nasdaq 1327. The technicals support only a bounce and not a strong rally next week and that the next major move is still down, as rallies may only be retracement rallies of 38 to 50%.
If the market could selloff like crazy this week and get very oversold, then it could trigger a good technical rally thereafter for 1-2 weeks. But the odds favor a temporary test of Dow 7900 support, and then a retest of the October lows, probably occurring in the first quarter, at 7197 (and 768 for the S&P 500 and 1108 for the Nasdaq). The valuations of stocks allows for much lower prices in the longer term but the focus is for the next few weeks and months, as we let the market and technicals tell us as we go along.
Gold has risen sharply and closed near 368, and appears likely to reach the 375 area in the next week or two as long as we hold above the mid-340's, which is probable. There is some chance that we could actually rise above 375 and approach 400 before a large correction takes place. Gold is being helped by the falling U.S. dollar, and is now getting or starting to get parabolic, a warning sign of a short term top (within a longer term bullish trend) nearing.
Dr.Bob's commentaries are not to be construed as recommendations to buy or sell stocks, options, or ETF's as Dr.Bob is not a Registered Investment Advisor. Information and data provided here is believed to be reliable but cannot be guaranteed to be accurate. Always do your own research and due diligence before investing or trading. Remember that Technical Analysis can change by the day, and as such, one day's TA may not be the next day's TA interpretation.
Dr.Bob's mission is to teach Technical Analysis and demonstrate a structured approach to Market Analysis, for position and swingtrading.
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