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These are Past Comments From Market Review

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     Friday, November 22, 2013.  The Dow finished the day at 16064.77 for a gain of 54.78 points or .34%.  The low for the day was 15976.27 (-33.72 points), and the high was 16068.8 (58.79 points).  Stocks closing with a gain numbered 23 and stocks closing with a loss numbered 6 (76.7% were gainers and 20.0% were losers). Today's total volume for the Dow stocks (unweighted) was greater than yesterday's volume by 15.6%.  Our "Watch List," is made up of the same stocks tracked by The Valuator and our "Donchian Alerts" scanner. Those 499 stocks, underwent the following changes. The Average Price Change was = 0.43%, Rising Stocks = 342, Falling Stocks =  160, Percent of Stocks Rising = 68.1%, Rising Stocks = 2.13 x Falling Stocks, Average Volume Change = 3.1%.
      Today's market-moving news consisted of two main items. There was better-than-expected data on weekly jobless claims, which fell by 21,000 to 323,000.  Also, wholesale prices dropped 0.2% last month (inflationary pressure not evident).  The market's participants are not quite as anxious as they were before about the Fed easing back on its bond purchases.  Our own take on this is that corporate financials currently leave the market slightly overpriced, but not severely so.  However, a gradual easing of QE may give companies time to grow stronger financials.  In the meantime, a lower than normal interest rate environment will encourage capital expenditures and eventually boost earnings.   On the other hand, an abrupt cessation of the QE program would jolt the market at first, resulting in a more severe pullback.  However, there is apparently enough resilience in the market to absorb even that kind of shock. Markets tent to move from an extreme undervalued condition to an extreme overpriced condition, and then back again.  There is room for more upside before the market reaches the "extreme" level.
     Check the above charts.  Both the Dow and the S&P500 rebounded from "P," showing a surprising amount of strength.  The charts tell us to expect more upside on Friday.  That is, the market is more likely than not to remain on the left side of "P."  Momentum investors should see this as an opportunity.  Those who subscribe to the "Strongest Stocks" list can testify that those stocks are on a tear.  Volume increased a little for the Dow stocks, but our "Watch List" stocks had an average volume increase of 16.7%.  The Dow stocks had an average price increase of .69%, but our watch list stocks had an average price increase of .99%.  The implication of the volume and price changes is that there is increasing participation by the small investor.  We still maintain that the angle of ascent of line "P" is too great to be sustainable.  That does not mean we think it has to adjust right now.  One of our models is currently estimating the Dow will reach 16,650.  That's about 640 points higher.  This seems high to us at this time (but we are not disputing it), and there is variance in the estimate.  So, this number may not be exactly on target (the exact number is not important), but it does give us a rationale for being aggressive.  As long as we are protecting ourselves with stop losses, the potential rewards outweigh the probable risks.  Therefore, we are quite willing to take positions in stocks that have a good setup configuration and a trigger event.
Tuesday, January 22, 2013.  The Dow declined early, hit its low by about 10:30 a.m. EST, then reversed course and rose through most of the day, closing at 13,712.21 for a gain of 62.51 points.  This close was decisively above the dashed purple line we drew at 12,668.  The reason we are reticent about declaring this a breakthrough is that resistance lines do have elasticity, the market is overbought, and volume decreased dramatically on this move.  However, if we do not see a decline tomorrow, then the Dow is likely to continue up to the next band of resistance.  That band begins at about 14,025 and extends to about 14,200.  On the S&P 500 there is some resistance beginning about 1518.  We don't want to be the ones who are always calling "wolf," but we have been traders a long time.  The way one survives as a trader is to be perpetually looking for what could go wrong.  You do not become successful by finding what Peter Lynch called "10-baggers."  They are great to have, but you never know in advance how far a stock will climb after you've bought it.  However, you can have a say in the amount you will lose if the stock turns against you.  That is what stop losses do.  They help you control your losses.  Expert traders do not become wealthy because their stocks always rise 20% or more.  They become wealthy by not losing money.  They allow a stock to rise as much as it wants to, but when it reverses, its decline is limited.  When we see a surge in a stock, index, or average on a contraction of volume, we become extremely cautious.  Today, the total volume of the Dow stocks decreased 24.5%.  NYSE volume decreased 29.1%.  The situation makes us think of a hot air balloon rather than a rocket.  The rocket surges ahead because of thrust (volume of shares purchased drives prices higher).  The hot air balloon rises because its content is less dense than its environment.  It rises because it is light weight.  We are not saying the market cannot go higher.  We are saying that you should have your stops where you want them to be if the market were to plunge tomorrow.  We think of this as a relief rally.  People have heard nothing but bad economic news and political bickering for many months now.  Finally, they are getting signals that the bickering is fading and things are getting better.  That has altered market sentiment.  However, sentiment is a fleeting thing.  A brief news item can change everything.  The reason political bickering is fading right now is that it is no longer crunch time.  When time is again running out and decisions have to be made, the bickering will resume.  Tomorrow we are expecting earnings reports from Apple, General Dynamics, and McDonald's among others.  Good reports will probably lift the market a little higher.  While the market is undervalued, it is also short-term overbought.  A price adjustment will probably occur soon.  Be wary.  [Long-term, the trend is to higher levels.  Short-term the market is ahead of itself and in need of some mild selling to eliminate some of the excesses that have built up recently.]
     The CCI rose to 166.9.  The stochastic oscillator is now at 97.8 (overbought & due for a decline).  The Chande Momentum Oscillator is at 63.6 (an extreme reading normally seen shortly before a decline), money flow is at .45 (very high), and the Chaiken advance/decline fell again against the Dow's rise (bearish implications).  The McClellan Oscillator rose to  154 (150 is usually a warning level, so it is getting high), while the Summation Index advanced.  The MACD had a modest divergence today.  The MBI has confirmed a positive bias (the market is supporting bullish positioning).  Advancing stocks outnumbered declining stocks 2.3 to 1 on the NYSE, and there was 2.9 times as much up volume as down volume.  Create your "watch list" now.  Look for stocks in a "setup" configuration.  Watch them on any market decline to see how much they resist that decline.  After the coming short-term decline, you should be able to find some good entry points.  For more on setups, see the bottom portion of the "Stock Alerts" page.
     With regard to the R.C. Allen triple moving average system, the Dow's 4-day average (green) is above both the 9-day moving average and the 18-day moving average. The 9-day average (blue line in the chart) is above the 18-day average, and both are rising.  There have been no signals since 11/29/12.  That was a buy signal.  Market details can be seen in the table below titled "Market Review: The Latest Closing Statistics."
Monday, January 14, 2013.  The Dow declined for the first hour of trading, and then began a gradual climb that persisted until about 3:24 p.m. EST.  The last 30 minutes were marked by weakness (with a last minute surge that resulted in a moderately bullish Tick reading of 544 (Tick readings are not necessarily static after the closing bell).  The Dow is still fighting resistance as it climbs its "wall of worry."   That resistance will increase incrementally with each higher level between from about 13,488 to 16,650.  At this stage, vigorous selling is not yet taking place, but tension is increasing.  The market is overbought, and traders will not allow that to continue indefinitely, so stay prepared for a decline at any time.  Not much has changed since Friday.  Investors are still waiting for earnings reports from major companies.  Some good reports will help fuel the Dow's rise to about 16,650.  That is still our approximate goal for the Dow short-term (barring some news event that derails this relatively timid advance).  Recall that Friday's 17 point move was accompanied by a decrease in the accumulated volume of the Dow stocks.  Unfortunately, we saw the same thing today (a little more than an 18 point rise with another decline in volume).  Again, the weak volume Thursday, Friday, and today shows a lack of commitment (indecision) by investors.  Also the large numbers of potential sellers at these levels are not altogether convinced they should sell. 
     Remember the analogy of a coil tightly wound.  When significant news breaks, this market will either surge or plunge.  Whatever it does will be marked with vigor.  The market is especially sensitive to news events.  A resolution of the "fiscal cliff" problem will send the market surging.  Without that, good earnings will lift the market for a while, but a stalemate in Washington will have a negative effect.  Simple one-dimensional strategizing is not adequate when investors are edgy and hyper-reactive to news events and the ongoing complaints by politicians on one side of the isle about the unwillingness of politicians on the other side of the isle to be reasonable.  We said on Friday that we would have to wait until today to see if buyers will step in once the weekend is behind them.  They did not.  Right now, the main fuel causing the market to have a positive drift is the anticipation of positive earnings reports.  We have some major companies about to release their reports.  A bad report or two from major companies could put an end to this little uptrend.  Until those reports are released, the market will probably drift with a weak upward bias.  For now, keep stops in place and adjusted.  Look for good setups and trigger events to take advantage of short-term price surges (scalping).  The total volume of the Dow stocks declined 5.7%.  Volume on the NYSE Composite declined 6.65%.
     The CCI declined to 91.9.  The stochastic oscillator is now at 99 (overbought & due for a decline).  The Chande Momentum Oscillator is at 38.4, money flow is at .39, and the Chaiken advance/decline rose with the Dow's rise.  The McClellan Oscillator declined to  93.7, while the Summation Index continued its march to the upside.  The MACD had a slight bearish convergence today.  The MBI has confirmed a positive bias (the market is supporting bullish positioning).  Rising stocks outnumbered declining stocks 1.003 to 1 on the NYSE Composite, but there was 1.217 times as much down volume as up volume.  Create your "watch list" now.  Look for stocks in a "setup" configuration.  Watch them on any market decline to see how much they resist that decline.  After the coming short-term decline, you should be able to find some good entry points.  For more on setups, see the bottom portion of the "Stock Alerts" page.
     With regard to the R.C. Allen triple moving average system, the Dow's 4-day average (green) is above both the 9-day moving average and the 18-day moving average. The 9-day average (blue line in the chart) is above the 18-day average, and both are rising.  There have been no signals since 11/29/12.  That was a buy signal.  Market details can be seen in the table below titled "Market Review: The Latest Closing Statistics."

Footnotes -- NYMEX Light Sweet Crude closed at 94.225 ... Apple (AAPL) fell 3.6% ($18.55) after the Wall Street Journal reported that the company had lowered its iPhone production plans because decreased sales ... Sprint Nextel (S) dropped 3.89% because it was downgraded by several brokerage firms ... Dell (DELL) surged 12.96% after Bloomberg said it was in buyout talks with private-equity firms ... Hewlett-Packard (HPQ) surged 4.89% after J.P. Morgan upgraded it to neutral ... International Business Machines (IBM) dropped -0.94% after J.P. Morgan downgraded it to neutral ... Research In Motion (RIMM) rose 10% on reports that demand is declining for Apple’s iPhone ... Sears Holdings (SHLD) surged 8.9% after Edward Lampert said he increased the size of his position in the stock last week ... Scripps Networks Interactive dropped 1.1% on being reduced to hold from buy at Deutsche Bank AG ... Cisco Systems (CSCO) rose 2.4% on being raised to outperform at Robert W. Baird & Co. and at William Blair & Co ... H&R Block (HRB) drooped 2.9% when it was reduced to underweight from equal weight by Morgan Stanley.

Friday, November 2, 2012.   Yesterday our indicators had just given buy signals, barely.  However, the fact that volume was down 6% led us to conclude, "...we still do not have a great deal of confidence in the apparent reversal.  We want to see a convincing follow-through."   We did not get that follow-through today.  Instead, we got a whipsaw that took the Dow back below the resistance at "Z."  The single day above that line was not enough to turn that resistance into support.  The Dow's 4-day, 9-day and 18-day moving averages all declined today.  Yesterday the 4-day moving average was rising (it is now declining), the stochastic oscillator was oversold and approaching an early short-term buy signal (today it continued up and gave the second stage buy signal), the Chande Momentum Oscillator had just crossed above the zero line (it has just crossed it again to the downside), money flow had just become positive (it has now become negative again), and the Chaiken advance/decline line had risen slightly against the Dow's small decline yesterday and had just crossed above the zero line (it is now positioned to cross below it again, but the amount of decline is surprisingly modest given the magnitude of the Dow's decline).  Yesterday, we also noted the repeating pattern of the McClellan Oscillator and said it had just crossed above the zero line (the pattern persists, and the oscillator has crossed below the zero line again).  The Summation Index has reversed direction again (it is now falling).  Yesterday we said that the MACD had started a bullish convergence (that convergence has abated).  Yesterday, the Market Bias Indicator (MBI) was indicating that the market has a positive bias, and that the MBI had canceled its short-term sell indication (that has not yet changed).  The number of rising stocks was 2.3 times the number of declining stocks on the NYSE Composite.  The upside volume was 3 times the declining volume.  Volume was down .34%.  Line "Z" is still acting as overhead resistance.  The market hates uncertainty.  Right now, the big question mark is the coming election.  That uncertainty makes the market nervous. Many market participants are concerned that an Obama win would make it more difficult for Congress to resolve the split between Republicans and Democrats regarding expiring tax breaks and spending measures.  The stalemate in congress has become a big issue for many who believe that, if the stalemate continues, the economy faces a recession.

Friday, October 19, 2012.   To get a sense of where we are, look at the above chart.  Before today, the Dow was in an uptrend but encountering resistance at "B."  The lower boundary of its trading was defined by the dashed green line, the 50-day moving average, and the rising blue trendline "Z."  Today, the Dow dropped below "Z" on a surge in volume (25% for the Dow stocks and 31% for the NYSE Composite).  Unless the Dow gets back above the rising blue trendline immediately, that line will no longer be significant as support.  In that case, the most likely scenario is that the Dow will trade between the dashed green line and the overhead resistance at "B."  Currently, the dashed green line is getting assistance from the rising 50-day moving average.  Though it is possible that we will have some intraday follow-through on Monday, the green line of support remains a likely level at which the Dow can catch its footing.  There is a potential problem with this scenario, however.  Approximately 140 S&P500 companies are expected to report next week, and a significant number of them are very influential in shaping market sentiment.  The market is now focused on earnings.  If we have a number of negative reports, the green line will not be able to provide enough support to absorb the selling pressure that will ensue. There is a high probability that investors will not jump ship until they can get a sense of how much our sick economy has damaged corporate earnings, but they probably will not have to wait until next Friday to come to a conclusion on the matter.  We said several days ago that the resistance at "B" would only temporarily stop the Dow's rise.  If the earnings reports coming out next week are sickly, then the break through the overhead resistance may be delayed beyond early November.  The Summation Index declined (bearish), the MACD is now in a bearish divergence again, the stochastic oscillator just gave an early short-term sell signal, and the CCI crossed below zero today (bearish).  The Chaiken A/D declined with the Dow.  The Market Bias Indicator (MBI) indicates that the market has a positive bias, but there is no confirmed buy or sell signal (straddles).  Today, there were 3.5 stocks declining for every stock rising NYSE.
    With regard to the R.C. Allen triple moving average system, the green 4-day average is above the 18-day moving average and the 9-day average.  The 9-day average (blue line in the chart) is still below the 18-day average.  All averages are declining.  The latest signal was a "sell" on 10/11/12.  Market details can be seen in the table below titled "Market Review: The Latest Closing Statistics."

Wednesday, October 10, 2012.   The Dow was in a downward slide all day, with a little abating of negative momentum after 2 p.m. EST. The Dow closed at 13,344.97 for a loss of 128.56 points.  We still expect this to be a modest decline.  Note how the Dow was turned back at the support marked by the green line in the above chart.  Expect the negative momentum to continue early on Thursday. However, there should be distinct slowing of this decline.  The real body of tomorrow's candlestick may be black, but it should be much shorter than today's real body.  The support at the broken green line, the rising trendline "A," and the rising 50-day moving average should significantly slow the decline if not stop it.  There is backup support from a Fibonacci arc (not shown) at about 13,270 that could be tested intraday. Yesterday we said that successful traders are programmed to minimize risk.  With that in mind, what would be the most likely scenario Thursday?  Our guess is that there will be reluctance to buy ("Never try to catch a falling knife with your bare hands") until there is evidence that support is actually working to stop the slide.  If there is enough buying by investors at those lines of support, the effect of that buying will become evident, and traders will be encouraged to get on board.  They will be watching market action closely tomorrow because they see the same support that we see.  They will be watching to see how effective it is.  The McClellan Oscillator declined below -139, the Summation Index declined with even wider separation (bearish), the MACD has resumed its bearish divergence and that divergence is becoming extreme (a potentially bullish configuration), the stochastic oscillator is rapidly approaching an oversold condition, and the CCI is below -163 (for some traders, a cross below -200 is an automatic buy signal).  The Chaiken A/D line declined today.  The Market Bias Indicator (MBI) is still in a short-term sell configuration within the context of a market having a positive bias.  Volume was virtually unchanged, being down 3.2% for the Dow stocks and down 3.49% for the NYSE Composite.  Expect more downside action tomorrow, but there may well be some buying before the market's close.  The model's probable scenario is a bit ambiguous, but there is a high probability that the decline will be modest by the end of the day.  However, this is barring additional bad news on Thursday.  A little more negative news could drive the market below support.  That would be a setup for a more significant decline.  Given the sell signals we are getting, that scenario is very much a possibility.  We will know more about that tomorrow.  How the market behaves around this support will be a good indication of how much decline we can expect.
    With regard to the R.C. Allen triple moving average system, the green 4-day average is back below the 18-day moving average but above the 9-day average.  The 9-day average (blue line in the chart) has crossed (barely) below the 18-day average.  The 18-day moving average is still rising.  The latest signal was a "buy" on 9/12/12.  Market details can be seen in the table below titled "Market Review: The Latest Closing Statistics."

Current Status of our Models
Our short-term model is bearish - generated a sell signal 10/10/12
Our intermediate-term model is bullish - generated a buy signal 6/18/12
Our long-term model is bullish - generated a buy signal 12/20/11.
 
Footnotes-- NYMEX Light Sweet Crude closed at 91.100 ... Job openings declined in August, down to 3.561 million from 3.593 million in July ... The Federal Reserve reported in its Beige Book business survey that the U.S. economy grew “modestly” last month.  Alcoa (AA)  lost 4.60% as a response to its reduced forecast for the world’s demand for aluminum ... Chevron (CVX) lost 4.18% on its warning that falling crude prices and reduced production would result in “substantially lower” earnings.  Also, the Supreme Court declined to stop a $19 billion judgment against Chevron by an Ecuadorean court for polluting the Amazon ... Wal-Mart Stores (WMT) gained 1.73% on news it would increase the number of U.S. stores after a “very strong” back-to-school season ... Yum Brands (YUM) gained 8.04% after it reported quarterly income above expectations on increased sales ... Monster Beverage (MNST) fell 5.5% on news it was reduced to hold from buy by Stifel Nicolaus & Co ... Cummins Inc. (CMI) fell 3.4% as the company said it will cut up to 1,500 jobs by the end of 2012 and reduced its estimates for revenue and profit.

Monday, September 24, 2012.   The Dow continues to drift sideways with indecision in a very ambiguous environment, closing today at 13,558.92 for a loss of 20.55 points on a 65% drop in volume.  To measure the market's emphasis during this time of consolidation, we decided to compare the total volume on up days with the total volume on down days.  It turns out that down days have accumulated 25.56% more volume support than up days, even though four out of the last seven days have been up days.  As we said before, Friday's small decline was meaningful because of the huge volume.  That volume is what helped tip the scales to the bearish emphasis.  The difference is enough to serve as a warning of a possible resolution of this indecision to the downside.  We have housing data coming out over the next few days.  Many traders will be strongly influenced by the numbers, because housing is considered a key to recovery.  The technical pattern on the surface looks like a continuation pattern.  However, we think it would be foolish to completely ignore the indicators.  The summation Index declined today.  The McClellan Oscillator crossed below the zero line.  Money flow has turned negative, the stochastic oscillator and the Chande Momentum Oscillator are still overbought.  The Chaiken Advance/Decline line has crossed zero, the MACD looks like it is ready to give a sell signal, and the MBI is saying it would be wise to hold off on taking new positions.  We see the Dow in a narrow trading range between 13,500 as the lower boundary and 13,655 as the upper boundary.  A breakout through either boundary would be an indication of market "intent" short term, especially if that breakout occurs with heavy volume.  We also think that very tight stop losses are appropriate.
    With regard to the R.C. Allen triple moving average system, the 4-day average is above the 9-day (blue line in the chart) and the 18-day average (red line).  The 9-day average has just crossed above the 18-day average (red line).  The latest signal was a "buy" on 9/12/12.  Market details can be seen in the table below titled "Market Review: The Latest Closing Statistics."

(Comments for Wednesday 6/27/12) Wednesday the Dow accomplished most of its positive move by about 10:15 a.m. EDT. It then traded mostly sideways and finished the day with a little decline. The Dow is approaching the CCI zero line from below (there is a little resistance there). There will also be some resistance from the Dow's declining 50-day simple moving average at about 12,700. This is backed up by the broken green line in the above chart. Be aware, also, that the On Balance Volume is encountering resistance at this approximate level. All of these resistances notwithstanding, bear in mind what we said a week ago. The market "wants" to climb a "wall of worry." Long term, the trend will be to higher levels. We point out potential short-term pivot points for the benefit of swing traders who want to profit from the short-term moves that the market makes as it works its way higher. The next challenge for the Dow is to prove its bullish intent by working its way above the broken green line. Volume on the NYSE dropped nearly 4% on today's gain. That undermines the authenticity of today's advance, and enhances the probabilities that the aforementioned resistances will ultimately hold sway short-term. The projected trading range would still be marked by the two red lines in the above chart labeled "X" and "Y." [12,881 and 12,400 resp]

(Comments for Thursday 2/9/12) Thursday the Dow declined early, to reach its low by about 10:35 a.m. EST.  It rose afterwards, but ran out of steam by about 1:25 p.m., and commenced a decline that took the Dow to its close at 12,890.46 for a gain of 6.51 points.  Volume was increasing during the last 30 minutes of decline.  News headlines continued to drive the market.  Lucas Papademos (Greece) said his government’s talks with international creditors concluded with a new loan agreement to finance Greece with 130 billion euros, but the deal has not yet been officially approved by the finance ministers.  Treasury prices fell, resulting in the 10-year note having a yield of 2.047%.  The decline of the dollar against the euro caused gold to rise to $1,741.20 an ounce on the Comex division of the Nymex.  The Labor Department reported that the number of Americans filing initial claims for jobless benefits dropped by 15,000 last week.  In the S&P, technology stocks were the best performing while health care stocks were the weakest.  United Technologies rose 2.5% on news it was considering the sale of its pump-and-compressor-making unit.  Apple rose 3.46% on news that it would release its next-generation iPad tablet in early March (with quicker processor and better display).  The above news items enabled the market to push against resistance (again) more than would be expected under "normal" conditions.  The problem for the market is that it is also running out of "gas."  Note the decline in the McClellan Oscillator and the very weak advance of the Summation Index.  The stochastic oscillator and the Chande Momentum Oscillator are giving an overbought notice.  For the present, the bias (MBI) is positive but that can change quickly.  The market has discounted a lot of good news, and significant advances from this level will not come easily.  In the chart above, you will note that we have removed some lines of support and resistance because they are not relevant at this time.  they will be returned in the future as needed.  We have also added the next level of overhead resistance at approximately 13,144, though the Dow may not reach that level this time around.  It is still fighting the resistance at about 12,880 (red line).  That resistance has not been convincingly penetrated.  Newcomers should be aware that lines of resistance are not appropriately represented by a single thin line.  The line drawn is actually the line of central tendency.  A more accurate representation would be a line and an envelope surrounding that line representing the distribution of significant selling pressure.  That line must be penetrated before the Dow can make significant progress from here.  As it is, the current "penetration" of that line is more like the penetration of a person's feet below level of the supporting frame of a trampoline.  That is, the penetration we have seen so far is not yet definitive, and there may still be a snap-back decline from current levels.  We are waiting for the Dow to either break through resistance (red line) or to break the rising trend that began with the low of 11-28-11 (see the rising purple line in the above chart.  We are still waiting for one of three scenarios to unfold.  A convincing breakout above the red line would be a significant indication of strength.  Drifting sideways through the rising trendline would not be a sign of major weakness, but a sign of inadequate strength for a move higher.  A plunge below the trend beginning in December on heavy volume would also be significant, and it would mark the termination of the recent rising trend.  Look at the following chart of the NYSE advance/decline line.  A Break in the trend of the A/D line (that began about 12/19) would also be meaningful.  Any day now, we should have a "decision." 

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A FEW THINGS TO KEEP IN MIND...
 
(Quick) Notes from a Trader’s Desk
by Wendy Felt, 12/01/11
1. We still haven’t broken the current downtrend (draw in a trendline across recent tops)
2. As a trader, it is important to act on what IS, not what you think ought to be.
3. A bull market will be confirmed in the next week, if we are truly in a reversal
4. As a trader, take responsibility for your decisions.
5. Ask... am I selling/ buying because it’s the right thing to do or in order to relieve my own discomfort? Traders trade risk, not companies. Here is a great opportunity to look at your own risk tolerance skills.
Remember you can always sell or buy half a position. You are never locked into anything.
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ALL THAT GLITTERS...
(Quick) Notes from a Trader’s Desk
by Wendy Felt, 11/22/11
 
 ...So in my assessment, we have just recently begun the fifth wave to the downside. Along the way, watch for upside moves that pull price action back up to the 20 day moving average.
 I am still mostly invested in leveraged ETF’s, however I’d like to share an example of a typical day trade that can be made in a market like this one. Even though I believe we are in a down trend that will take us below the previous low of 10,404 (on the Dow) there is often intra-day wiggle room. Toward the end of yesterday’s market, I sold most of my position in ZSL (short silver) because the stock exhibited weakness around 11:00 am, when it was not able to match it’s previous daily high. Today I bought GOLD. I happened to spot this beautiful set-up around 8:00 am as I was scanning through some 5 minute candlestick charts. This stock had an exceptionally strong open, and all of it’s morning price action had been higher than the opening price bar, which was up from yesterday. It also showed “room to run” with no overhead resistance until hitting the top of the downward gap from yesterday morning, or $110.30.
 I bought at 9:02 am, for $108.23, when I started to see confirmation of the stock’s strength. Knowing there was some resistance at 110.30, I placed my sell limit order for 110.20. I checked in periodically, and as the stock neared my sell price, I watched more closely. When only a portion of my order was filled at the limit price, I waited a minute, then opted to change the sell to a market order, as I had already made a good profit. My sell price on the remainder of the position was 110.10, at 9:48 am.
 Before market closed, I re-positioned myself to prepare for next week. (That means back in the leveraged ETF’s... in case you are new, see FAZ, EDZ, SKF, QID).
Of note... the DJIA has failed to close above the 50-day moving average. We have now broken down below the 150, the 100, and the 50 day simple moving averages in all three major indexes. The low volume of today is expected, as it is a holiday week. The market will likely respond to news on the political front tomorrow and Friday, and I am expecting more downward movement next week. Happy Holidays and Happy Trading!!!
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But Before that Christmas Rally...
(Quick) Notes from a Trader’s Desk
by Wendy Felt, 11/09/11
 ...So hopefully much of the volatility of the last weeks is approaching an end as we finish the final shake out of wave four, a typical corrective wave which retraces most of the move from wave three.
 I see this last wave (from early August through the present) as what Elliot describes as a “triple three” inverted expanding flat correction. The final move in the expanding flat is typically a five wave move which breaks to a new high or low (compared to the rest of the flat), then reverses to the other direction. In other words, I think this is an excellent time to buy short ETF’s such as FAZ, DXD, EDZ, SKF, DRV.
 If you are looking for more technical confirmation before buying, wait for the price to close below the 20 day MA, which currently sits right near today’s low (as of 10:30 am [today], at approximately 11,853 on the Dow, 1240 on the S&P, and 2650 on the Nasdaq).
 Wave five should be the final descent in this progression, bringing the Dow below the 10,500 low from early October.
 Again, remember that market prediction and timing are not infallible. The most important thing (I would assert in life as well as in the markets) is to remain adaptable. Be aware of what current reality is, rather than attaching to what you would like it to be. Reality is where all of our power lies.
 In markets such as this one, emotions are quite volatile, and therefore price action is quite volatile. I personally view this as confirmation that another descent is ahead, because I see these emotional extremes as a sign that fear is dominating more investor psychology. Notice the confusion of many investors about whether we are bullish or bearish, the inability of the “market” to choose a direction, the price action showing large vacillation intra-day, and news events being almost unrelated to resulting price action. This creates large price moves on the downside (panic), as well as euphoria when the markets go up (relief). Remember desperation and panic are instincive, and not easily hidden.
 Don’t be desperate.
 On that note, happy trading!
 
Wendy is the co-editor of The Valuator and the original tester of the Disciplined Growth Strategy. For more on the author, see "Wendy's Trading Result" below, and read Question #10 on the Q&A page.

(Comments for Friday 2/3/12) U.S. stock markets surged Friday, especially the Nasdaq (technology was strong). That index closed at 2905.66. The last time it closed at that level was when it closed at 2931.77 on December 12, 2000. The Dow closed at 12,862.23 for a gain of 156.82 points. There is only about 18 points headroom from here, meaning that the Dow will have to fight to go much higher. News events between now and Monday will likely be determinative. There were a number of news items today that encouraged investors to buy. The U.S. jobless rate dropped to a three-year low, the Labor Department said 243,000 jobs were added in January, the unemployment rate declined to 8.3%, the Commerce Department said that orders to factories increased 1.1% in December (order backlogs advanced 1.4%), and the Institute for Supply Management reported that its index of non-manufacturing industries rose to 56.8 in January from 53 in December. With all these positive reports, Treasuries declined (pushing the 10-year yield up to 1.949%). The Dow spiked up early, reaching its high by about 10:15 a.m. EST. After that it traded in a narrow range until the close. It was as if the Dow was stopped in its tracks by a brick wall. Of course, resistance is rarely like a brick wall, so we may see some penetration on Monday. Check the above chart and notice that the Dow did not accomplish a breakthrough, despite its robust behavior. Given the magnitude of its advance, we would have expected to see more volume. The coming weekend may have put a damper on that. The MACD has just crossed back above its trigger line (buy signal) and the MBI is still reading a positive bias. Our concern is that the Chande Momentum Oscillator is very extreme. A reading of 50 would indicate that positive momentum is three times negative momentum, a reading that often occurs shortly before a correction. Its present reading of 69 is well beyond that. We are within a day or two of decision time, and Monday's action may be significant. Again, we are waiting for a breakout above the overhead resistance (red horizontal lines in the above chart) or a break below the Dow's short-term trendline. A convincing close below the trendline (not shown, but the starting point of the trendline is the low of 11-28-11) would be a significant sign of deterioration. For the last three days, the Dow has managed to close just above that line. The rising trendline and the overhead resistance converge in about two days. Therefore, the Dow will have to break through one or the other within two days. The red resistance lines in the chart are at about 12,823 and 12,880 respectively. That means the Dow can rise another 18 points from Friday's close without really breaking through the resistance. We see three possible scenarios. A convincing breakout above those red lines would be a significant indication of strength. Drifting sideways through the rising trendline would not be a sign of major weakness, but a sign of inadequate strength for a move higher. A decline through the rising trendline, on the other hand, would be significant. Look at the following chart of the NYSE advance/decline line. A break of the trend beginning in December would also be significant.

(Comments for Thursday 10/27/11)  Thursday the Dow closed at 12,208.55 for a gain of 339.51 points. The immediate cause was a news event to the effect that the EU would increase Europe's bailout fund to approximately $1,400,000,000,000. Holders of Greek debt will be expected to take losses of 50%. In addition, the largest banks will get an infusion of about $150,000,000,000 so they can absorb the loss. Greece will also get $140,000,000,000. As we have said repeatedly, news events can trump any kind of analysis. Today's move put the dow above the resistance we had been describing as a threat to further advance by the Dow. Many indicators have turned bullish. The Summation index is rising strongly. The MBI is quickly approaching a positive bias. Some indicators are overbought, but that can last awhile before a correction actually takes place. It is always wise to make your bets in the direction of the market's trend. As we have been saying, the trend of recent days (even before today's news) has been up, and it will remain up until we have a break below the trendline. Now that we have acknowledged the bullish thrust of the market, we should give a few cautionary notes, to provide a more balanced perspective on the market. One of our traders, who happens to be very well versed on Elliot Wave Theory says that the current configuration of the Dow's chart looks suspiciously like an "expanded flat correction." The implications of the pattern are bearish. Today's bullish move was simply part of that pattern. There is no precise timing on the expected correction, but it may be a whopper in magnitude. Perhaps we will get an expansion on this idea later. Next, in the above chart, please note the resistance at "D." That is approximately where the Dow closed today, suggesting that the Dow "felt" its influence and gave in to it. There is additional resistance at "E" (two lines are drawn at E to define that band of resistance). Finally, remember that no stock or market goes up without pauses and retracements. Today's move was strong and on good volume. However, many traders will be likely to cash out quickly at the first sign of weakness, resulting in at least a 1-day correction. This will be of interest to short-term traders. Several months ago, we said that when the market finally turns around, it will have to fight its way through a series of resistances. So far it has managed the gauntlet well. However, there is more ahead. We do not like being in the position of always calling "wolf," and that is not really what we are doing. We are simply stressing the necessity of being circumspect. By all means, be a participant in the rising tide. However, be on guard. Always have your stops in place and adjust them frequently. Tuesday we suggested hedging against a decline. That is still wise advice. Also, we suggested that you review and/or monitor such stocks as EGO, SLV, GOLD, FAZ, DRV, DXD, SKF, and EDZ. Monitor them to be on the spot if any develop a setup configuration. They should become especially interesting if there is a market decline. With regard to the R.C. Allen triple moving average system, the 4-day moving average is above both the 9-day average, and the 18-day average, and the 9-day average is above the 18-day average. It is therefore in a "buy" configuration. The configuration is strong, showing no hint of a reversal in the works.
 
Copied 10/21/11
On 9/2/11, we said "... Prepare for the Dow to test the previous low reached on 8/9. We do not expect it to decline below that low at this time. However, there are some good arguments for expecting a deeper decline later. Those arguments are much too complex and theoretical to go into now, and that outcome is by no means certain."
For more on the above comment (in red text) and for our perspective of the larger picture (and why we are not more excited about recent occasional rallies even though we try to profit from them), see Wendy's articles below, "Hold the Shorts!!!" and "Keep your hands and arms inside...." In those articles, Wendy shares her thoughts on the market and how she is positioning herself in this environment. Please read them carefully. Wendy is the co-editor of The Valuator and the original tester of the Disciplined Growth Strategy. For more on the author, see "Wendy's Trading Result" below, and read Question #10 on the Q&A page.
 .
Hold The Shorts!!!
... notes on the market from a trader’s desk
by Wendy Felt
.
As the closing bell rings on Sept 27, 2011, the market closes strongly up for the second day in a row. You may find yourself thinking, “Is the market recovering finally? Has the worst of the selling occurred, shaking out the weak hands (and minds)?” Perhaps our country is really on the way to economic recovery, and the market is about to soar up beyond it’s previous highs.
I will let you determine the answer to that question for yourself. As for me, I am completely invested in leveraged ETF’s at the moment, and have written this article to tell you why.
Obviously, there is no magic oracle that tells us exactly what the market will do and when it will do it; however, in technical analysis we rely on tools and indicators that give us information about market climate. Piecing these bits of information together, we create a scenario, an overall picture that can give us direction in which to move. Though we may not be able to predict timing, it would be foolish to ignore obvious signals that may critically affect our portfolio performance.
.
Looking at the one-year candlestick chart of the Dow, I see several things ...the most obvious being a clear head and shoulders pattern, with the head peaking the first week of May. The neckline that offers support is the low reached on March 16th and 17th. Notice how the DJIA plunged right through this area of support, coming up from underneath to test what has now become resistance. Draw your trend line connecting the last week of December, 2010, the open of the price bar on Jan. 3rd, the lows of the real bodies on March 16th and 17th, and the highs of the real bodies made on August 31st and Sept. 1st. Now notice how we have been unable to push through that resistance to a new high.
If you look more closely at the formation that has been taking place since August began, you will notice something that is surprisingly common in technical analysis...patterns repeating themselves.
The shape the price action has been taking here is crucial. First, there is a small scale head and shoulders forming, and we have just finished the second shoulder. The rally we have been experiencing was nothing more than a dead cat bounce up from the support from the last low (previous support on 9/10 & 9/11), which forms the neckline of this new, smaller head and shoulders formation. The inability to close above 11,250 is confirmation of weakness in the rally, because the real body of today’s action was not strong enough to close over the resistance offered by the mid-Bollinger Band MA (I use the 20/2.4). In addition to this, both rally days took place amidst lower than average volume, which means the rally was not highly endorsed by the majority of investors.
.
Also, don’t forget that all major moving averages have not only turned down dramatically but we are failing to even get back near them during our rally days.
.
What I expect: Another sell off in the next week
When we’re in the clear to buy long: When the DJIA closes over 11,900 three or more days in a row.
.
Another thing I look at to determine market health is the performance of several big stocks... stocks like Amazon, Apple, IBM, Express Scripps, Goldman Sachs, Mastercard, Google, Black Rock Inc., etc.
On days when the market is gaining over a hundred points, and certainly over 300 points, I am suspicious when the majority of stocks I consider to be “strong” in a bullish market are closing substantially down. During the last two days, look at the poor performances from industry heavies such as AMZN, AAPL, NFLX, AZO, PCLN, KBH, ESRX, and MA.
The Health of Financial Institutions is in Question.
For example, look at Mastercard. This stock has been a favorite of mine since it’s IPO in 2006. It has been a favorite because it is something I refer to as a “runner.” Historically, when the market goes up, Mastercard soars. It’s percentage gains usually beat the majority of bullish stocks in the market (as with the others listed above).
Not only has it’s price action been completely uninspiring during the last 2 days of market rally, but it has also failed to break into the territory dominated by the downward price bar on the 21st, reinforcing the resistance created by the lows of the price bars on the 19th and 21st. Volume in this stock during the rally has also been unusually light.
Now onto the more technical... When looking at a one-year chart of Mastercard, notice the inverted head and shoulders formation ending on April 1st. If you draw a trend line across it’s tops beginning on Nov. 5th, and continuing straight across, you will see the price bar that signifies a breakout to the upside on April 4th. Here is where I begin labeling wave 1 of a standard motive wave pattern, according to Elliott’s Wave Theory.
Wave 1 is a standard impulse wave, meaning it proceeds relatively straight, in an upward manner. This first wave peaks (ends) at a high of $286.80 on May 3rd, and wave 2 begins, following a single zig-zag pattern, a pattern that is highly common in number 2 and 4 waves. (the zig zag is typically a correctional pattern, and comes in wave sequences of 3 rather than 5). On June 29th we springboard up into wave 3, which peaks on July 7th at $322.27... and we proceed to wave 4, another zig zag pattern that is slightly “flatter” than wave 2. On August 3rd, we springboard once again into wave 5. You may notice that this wave looks different from the others. According to my analysis, wave 5 is what we call an “ending diagonal wave,” a special type of formation that occurs primarily in the 5th wave position when the previous move has gone too far, too fast.
Ending diagonals take a wedge shape within 2 converging lines. Each sub-wave divides into 3’s instead of 5’s, which is otherwise a corrective phenomenon. Ending diagonals are termination points of larger patterns, indicating exhaustion of the larger movement. In other words, the way I see it is that Mastercard is due for a pullback.
.
What will I do?
I bought FAZ, a leveraged ETF that is short financials. Another good one that is leveraged is SKF.
.
Other ETF’s to keep an eye on...
ZSL / SLV (learning to play these against each other could prove highly lucrative, we made over 30 % in two days on ZSL last week)
DTO (short oil)
EDZ (Emerging Markets)
DRV (short real estate)
QID (short the Nasdaq)
.
.
9/30/11 Keep your hands and arms inside...
...notes from a trader’s desk, 9 am, 9/30/11
 by Wendy Felt
.
 Earlier this week I said I’m buying the shorts; today I say again, I’m buying/ holding the shorts!
 If you have been watching charts of the markets, you will have likely noticed that the Dow has not even had price action above that (20, 2.4) moving average today, whereas the last three days, the price bar punched up through the resistance but closed just under it. The Nasdaq has (so far) not even come close to touching that midway (20, 2.4) today.
 Mastercard has dropped down below it’s 50 day moving average, and hasn’t yet been able to get back up to it. Bank of America... well, I think the chart says it all on that one. An ETF I enjoy trading is FAZ, short financials. I am in it now.
 Oil stocks continue to weaken. I am currently in SCO, short crude.
 Real estate... there is a huge inventory of available homes without buyers... DRV is bearish on real estate, and I think the chart looks poised to run up again. Short term, we have support from the big white body on the 21st, that got confirmation from the move on the 28th. As long as we don’t reverse these price ranges, we stand to make a good profit from this trade.
 As for ZSL and SLV, I am watching to see which runs up next ... and I am ready to adjust accordingly. SLV has support at 26, so if it goes down a few more dollars, watch for a strong reaction to that support.
 It is always possible that Europe will get it together and the markets will begin to climb. In this case, we will obviously adjust and take long positions. However, if you decide to be long, be sure to be conscientious about your stop losses... they are mandatory at this stage of the game. Happy Trading!
Tuesday p.m. Wendy said she was wanted to make additional comments, but it may take a few days (she has been moving to a new residence and is pressed for time). Stay tuned.
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COMMENTS: Friday (10-14-11)  The Dow's rise today has taken it right up to decision time. Somewhere between here and 11,715 on the Dow, there is a good chance we will see a stop to this advance because of an encounter with overhead resistance. If the Dow continues up much further, however, we will soon be in a market with a positive bias. This market has been giving some mixed signals lately. A willingness to ignore bad news and rise on any good news suggests that the market "wants" to rise. Short-term (from10/4/11 to now) the market has been bullish. That is why we have been willing to take bullish positions for short-term trades. The fact that volume was low again on today's rise suggests that there are others who are also concerned about that resistance. If the Dow can manage to break out above the "C" band of resistance, and do so with convincing volume, then we would say that the move was a "game changer." We are not saying that the market will necessarily decline on Monday. It might be able to push a little higher. However, "C" is where we would expect any reversal to take place (it is the region of highest probability for such an event). Today, the Dow's advance was again terminated by resistance generated by the 200-day moving average currently residing within the "C" band of resistance. Bear in mind that the resistance at the 200-day moving average has elasticity, and that could allow some penetration of the 200-day moving average line. It is noteworthy that the 200-day moving average was once declining but now looks like it is beginning to level. So far, the encounter with resistance has not altered the market's path of ascent. Even if the Dow eventually breaks through this resistance, we would expect at least some pullback beforehand. The MACD is still showing a magnitude of divergence usually seen just before a market reversal (on a reversal, the MACD will likely move away from an overbought level of divergence relatively quickly). The configuration of the CCI provides a kind of portrait of the present condition of the market. Please review the information below on the CCI. There is a link there that will take you to a more detailed explanation of how to interpret the CCI. It is often a leading indicator of market change. A move from above +100 to below +100 would suggest that a Dow decline is about to occur. Today's rise in the CCI postponed that crossing. Until the CCI starts to decline again, that scenario is off the table. The stochastic oscillator is in a short-term overbought condition. However, the stochastic oscillator is a short-term indicator and stochastic overbought conditions are usually corrected quickly (usually within a few days to a few weeks). The Dow's action is still contained within the trading range between "E" and "C" in the main chart.

 

     The market is showing us two faces. Look at the two paragraphs above the red type a little lower on this page. The data is quite bullish. For example, 101 R.C. Allen alerts is a lot of alerts, especially since 97% of those alerts were "Up Alerts." The rest of the data is also quite bullish. Notice how the McClellan Summation Index is stretching the distance between postings to the upside. That is also bullish. We have consistently mentioned that the larger picture is bearish. There is no denial on our part that current short-term configurations are bullish. It is also possible that the recent bullish movement will be able to break through resistance and overcome the bearish environment (see the MBI for evidence of the negative bias). Unless that actually happens, however, it would be wise to keep in mind that we are working in a market with a negative bias, and that within that environment there is a minor but still growing counter-current of bullishness. It would also be wise to keep in mind that the market is nearing a "decision point." We have said that the larger picture is bearish. However, even if support at "E" is not able to stop a market decline (if the bearish scenario of the larger picture is realized), that does not mean we will be in a bearish environment for a long time. Opportunities for profit will continue to exist in the market, both short-term and long-term.
     In the above chart "E" is identified by the two lines (one above and one below the letter) that serve to define the boundaries of that resistance band. Similarly, there are two lines marking the boundaries of the resistance band at "C." Currently, we are still waiting to see if the Dow remains in the trading range between "E" and "C" or if it breaks out of that range. Everything that takes place between now and the breakout is "treading water," but during the wait there will be opportunities for generating profits. If support at "E" does not hold, then we would expect a decline at least to 10,000 (possibly to the 9800's). That would be a much bigger profit-making opportunity. However, we intend to move quickly out of inverse ETFs and into bullish positions if support at "E" holds. There is no reason we can't profit as the market swings in either direction within the confines of its trading range.
     With regard to the R.C. Allen system, we have had a buy signal. The 4-day moving average is now above both the 9-day average, and the 18-day average, and the 9-day average is above the 18-day average (however, given the resistance overhanging the market, a whipsaw is possible).

 

COMMENTS:  Friday (9/30/11) the Dow closed at 10,913.38 for a loss of 240.60 points.      
     Friday the Dow simply complied with what we have been saying it would do.  This is an awsome market for making money!  If you had bought the stocks listed by Wendy in her articles below and posted here on the 27th and this morning, you could already have profits.  For example, look at what FAZ, SCO, and DRV have done today alone.  We also bought EDZ today and it surged as well.  We don't feel any obligation to hold these stocks long-term.  When they start their decline, we intend to go elsewhere.  People tend to shy away from the market when it has a negative bias.  Why?  It makes no sense.  You can buy ETFs that are short the market or various sectors of the market without using a margined account.  You buy an inverse market ETF in a cash account just as you would buy any stock.  If the market declines the inverse ETF rises.  You can do the same thing for financials, real estate, gold, silver, and so on.  You can profit from a decline in any of these and many others without being on margin or ever having to worry about margin calls.  As traders, we can make money when the market moves.  It makes little difference which direction it goes.  Today the Dow traded in a range that was lower than the range of Thursday, just as Thursday's range was lower than the range on Wednesday, just as Wednesday's range was lower than the range of Tuesday.  Each high has been lower than the previous high and each low has been lower than the previous low.  The pattern may not persist, but the bias is clear.  Simply keep your stop losses in place and adjusted to lock in your profit on any meaningful reversal.  For yet another day the Dow has been confined to the area below the Bollinger mid-band (the 20-day simple moving average).   The Dow also remains in the trading range between "E" and "C," but it is currently in a weak phase.  Draw a trendline connecting the highs of 9/1/11 and 9/20/11 (extending it to the present date).  Notice that the Dow has not even been able to muster enough strength to reach the trendline again.  
     
In the above chart "E" is placed between the two lines defining that resistance band.  We also have two lines marking the boundaries of the resistance band at "C."  We are waiting to see if the Dow remains in the trading range between "E" and "C" or if it breaks out of that range.  Everything that takes place between now and the breakout is "treading water," but during the wait opportunities abound for generating profits (for those who are bold enough to act).  If support at "E" does not hold, then we would expect a decline at least to 10,000 (possibly to the 9800's).  That would be a much bigger profit-making opportunity.  However, if the probabilities shift and what is now the lower probability scenario (support at "E" holds) becomes the higher probability scenario, we intend to move quickly out of inverse ETFs and into bullish positions.  There is no reason we can't profit as the market swings in either direction within the confines of its trading range.
     With regard to the R.C. Allen system, the primary moving averages remain in a sell configuration.  However, the 4-day moving average is slightly above the 9-day average.  The 9-day average is still below the 18-day average.        
     On 9/2/11, we said "... Prepare for the Dow to test the previous low reached on 8/9. We do not expect it to decline below that low at this time.  However, there are some good arguments for expecting a deeper decline later. Those arguments are much too complex and theoretical to go into now, and that outcome is by no means certain." 
     For more on the above comment (in red text) and for our perspective of the larger picture (and why we are not more excited about recent occasional rallies even though we try to profit from them), see Wendy's articles below, "Hold the Shorts!!!" and "Keep your hands and arms inside...." In those articles, Wendy shares her thoughts on the market and how she is positioning herself in this environment.  Please read them carefully.  Wendy is the co-editor of The Valuator and the original tester of the Disciplined Growth Strategy.  For more on the author, see "Wendy's Trading Result" below, and read Question #10 on the Q&A page.
 . 
Hold The Shorts!!!
... notes on the market from a trader’s desk
by Wendy Felt
.
     As the closing bell rings on Sept 27, 2011, the market closes strongly up for the second day in a row. You may find yourself thinking, “Is the market recovering finally?  Has the worst of the selling occurred, shaking out the weak hands (and minds)?”  Perhaps our country is really on the way to economic recovery, and the market is about to soar up beyond it’s previous highs.
     I will let you determine the answer to that question for yourself. As for me, I am completely invested in leveraged ETF’s at the moment, and have written this article to tell you why.
     Obviously, there is no magic oracle that tells us exactly what the market will do and when it will do it; however, in technical analysis we rely on tools and indicators that give us information about market climate. Piecing these bits of information together, we create a scenario, an overall picture that can give us direction in which to move. Though we may not be able to predict timing, it would be foolish to ignore obvious signals that may critically affect our portfolio performance.
.
     Looking at the one-year candlestick chart of the Dow, I see several things ...the most obvious being a clear head and shoulders pattern, with the head peaking the first week of May. The neckline that offers support is the low reached on March 16th and 17th. Notice how the DJIA plunged right through this area of support, coming up from underneath to test what has now become resistance. Draw your trend line connecting the last week of December, 2010, the open of the price bar on Jan. 3rd, the lows of the real bodies on March 16th and 17th, and the highs of the real bodies made on August 31st and Sept. 1st. Now notice how we have been unable to push through that resistance to a new high.
     If you look more closely at the formation that has been taking place since August began, you will notice something that is surprisingly common in technical analysis...patterns repeating themselves.
     The shape the price action has been taking here is crucial. First, there is a small scale head and shoulders forming, and we have just finished the second shoulder. The rally we have been experiencing was nothing more than a dead cat bounce up from the support from the last low (previous support on 9/10 & 9/11), which forms the neckline of this new, smaller head and shoulders formation. The inability to close above 11,250 is confirmation of weakness in the rally, because the real body of today’s action was not strong enough to close over the resistance offered by the mid-Bollinger Band MA (I use the 20/2.4). In addition to this, both rally days took place amidst lower than average volume, which means the rally was not highly endorsed by the majority of investors.
.
Also, don’t forget that all major moving averages have not only turned down dramatically but we are failing to even get back near them during our rally days.
.
What I expect: Another sell off in the next week 
When we’re in the clear to buy long: When the DJIA closes over 11,900 three or more days in a row.
.
     Another thing I look at to determine market health is the performance of several big stocks... stocks like Amazon, Apple, IBM, Express Scripps, Goldman Sachs, Mastercard, Google, Black Rock Inc., etc.
     On days when the market is gaining over a hundred points, and certainly over 300 points, I am suspicious when the majority of stocks I consider to be “strong” in a bullish market are closing substantially down. During the last two days, look at the poor performances from industry heavies such as AMZN, AAPL, NFLX, AZO, PCLN, KBH, ESRX, and MA.
     The Health of Financial Institutions is in Question.
     For example, look at Mastercard. This stock has been a favorite of mine since it’s IPO in 2006. It has been a favorite because it is something I refer to as a “runner.”  Historically, when the market goes up, Mastercard soars. It’s percentage gains usually beat the majority of bullish stocks in the market (as with the others listed above).
     Not only has it’s price action been completely uninspiring during the last 2 days of market rally, but it has also failed to break into the territory dominated by the downward price bar on the 21st, reinforcing the resistance created by the lows of the price bars on the 19th and 21st. Volume in this stock during the rally has also been unusually light.
     Now onto the more technical... When looking at a one-year chart of Mastercard, notice the inverted head and shoulders formation ending on April 1st. If you draw a trend line across it’s tops beginning on Nov. 5th, and continuing straight across, you will see the price bar that signifies a breakout to the upside on April 4th. Here is where I begin labeling wave 1 of a standard motive wave pattern, according to Elliott’s Wave Theory.
     Wave 1 is a standard impulse wave, meaning it proceeds relatively straight, in an upward manner. This first wave peaks (ends) at a high of $286.80 on May 3rd, and wave 2 begins, following a single zig-zag pattern, a pattern that is highly common in number 2 and 4 waves. (the zig zag is typically a correctional pattern, and comes in wave sequences of 3 rather than 5). On June 29th we springboard up into wave 3, which peaks on July 7th at $322.27... and we proceed to wave 4, another zig zag pattern that is slightly “flatter” than wave 2. On August 3rd, we springboard once again into wave 5. You may notice that this wave looks different from the others. According to my analysis, wave 5 is what we call an “ending diagonal wave,” a special type of formation that occurs primarily in the 5th wave position when the previous move has gone too far, too fast.
     Ending diagonals take a wedge shape within 2 converging lines. Each sub-wave divides into 3’s instead of 5’s, which is otherwise a corrective phenomenon. Ending diagonals are termination points of larger patterns, indicating exhaustion of the larger movement. In other words, the way I see it is that Mastercard is due for a pullback.
.
What will I do?
I bought FAZ, a leveraged ETF that is short financials.  Another good one that is leveraged is SKF.
.
Other ETF’s to keep an eye on...
ZSL / SLV (learning to play these against each other could prove highly lucrative, we made over 30 % in two days on ZSL last week)
DTO (short oil)
EDZ (Emerging Markets)
DRV (short real estate)
QID (short the Nasdaq)
.
.
9/30/11  Keep your hands and arms inside...
 ...notes from a trader’s desk, 9 am, 9/30/11
 by Wendy Felt
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 Earlier this week I said I’m buying the shorts; today I say again, I’m buying/ holding the shorts!
 If you have been watching charts of the markets, you will have likely noticed that the Dow has not even had price action above that (20, 2.4) moving average today, whereas the last three days, the price bar punched up through the resistance but closed just under it.  The Nasdaq has (so far) not even come close to touching that midway (20, 2.4) today.  
 Mastercard has dropped down below it’s 50 day moving average, and hasn’t yet been able to get back up to it.  Bank of America... well, I think the chart says it all on that one.  An ETF I enjoy trading is FAZ, short financials.  I am in it now.
 Oil stocks continue to weaken.  I am currently in SCO, short crude.  
 Real estate... there is a huge inventory of available homes without buyers...  DRV is bearish on real estate, and I think the chart looks poised to run up again.  Short term, we have support from the big white body on the 21st, that got confirmation from the move on the 28th.  As long as we don’t reverse these price ranges, we stand to make a good profit from this trade.
 As for ZSL and SLV, I am watching to see which runs up next ... and I am ready to adjust accordingly.  SLV has support at 26, so if it goes down a few more dollars, watch for a strong reaction to that support.
 It is always possible that Europe will get it together and the markets will begin to climb.  In this case, we will obviously adjust and take long positions.  However, if you decide to be long, be sure to be conscientious about your stop losses... they are mandatory at this stage of the game.  Happy Trading!

 

 

COMMENTS: Tuesday (9-27-11) the Dow broke the downtrend it has been in. However, there is no sign of a significant reversal here. Rather, we are in a trading range between "E" and "C." Actually, there could be two lines for "E" just as there are for "C." The second line for "E" would be just above the one shown in the chart. So far, support at "E" is holding. If it does not continue to hold, then we would expect a decline at least to 10,000 (possibly to the 9800's). The market has been responding positively to recent news. German Chancellor Angela Merkel gave the market a little encouragement when she said that she wanted a strong Greece to stay in the euro zone. The Greek Prime Minister George Papandreou said he was ready do what is necessary to lead Greece toward economic stability. On Monday, CNBC reported that euro-zone officials were contemplating a special-purpose vehicle to buy the bonds of distressed European governments, expanding the European Financial Stability Facility’s lending ability through leverage. With regard to the R.C. Allen system, the primary moving averages remain in a sell configuration. The 4-day moving average is below the 9-day average, and the 9-day average is below the 18-day average).
On 9/2/11, we said "... Prepare for the Dow to test the previous low reached on 8/9. We do not expect it to decline below that low at this time. However, there are some good arguments for expecting a deeper decline later. Those arguments are much too complex and theoretical to go into now, and that outcome is by no means certain." It is time to give you more of the reasoning behind our reluctance to become very excited about recent rallies. Please read carefully the following article. Wendy is the co-editor of The Valuator and the original tester of the Disciplined Growth Strategy. For more on the author, see "Wendy's Trading Result" below, and read Question #10 on the Q&A page.
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Hold The Shorts!!!
... notes on the market from a trader’s desk
by Wendy Felt
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     As the closing bell rings on Sept 27, 2011, the market closes strongly up for the second day in a row. You may find yourself thinking, “Is the market recovering finally? Has the worst of the selling occurred, shaking out the weak hands (and minds)?” Perhaps our country is really on the way to economic recovery, and the market is about to soar up beyond it’s previous highs.
     I will let you determine the answer to that question for yourself. As for me, I am completely invested in leveraged ETF’s at the moment, and have written this article to tell you why.
     Obviously, there is no magic oracle that tells us exactly what the market will do and when it will do it; however, in technical analysis we rely on tools and indicators that give us information about market climate. Piecing these bits of information together, we create a scenario, an overall picture that can give us direction in which to move. Though we may not be able to predict timing, it would be foolish to ignore obvious signals that may critically affect our portfolio performance.
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     Looking at the one-year candlestick chart of the Dow, I see several things ...the most obvious being a clear head and shoulders pattern, with the head peaking the first week of May. The neckline that offers support is the low reached on March 16th and 17th. Notice how the DJIA plunged right through this area of support, coming up from underneath to test what has now become resistance. Draw your trend line connecting the last week of December, 2010, the open of the price bar on Jan. 3rd, the lows of the real bodies on March 16th and 17th, and the highs of the real bodies made on August 31st and Sept. 1st. Now notice how we have been unable to push through that resistance to a new high.
     If you look more closely at the formation that has been taking place since August began, you will notice something that is surprisingly common in technical analysis...patterns repeating themselves.
     The shape the price action has been taking here is crucial. First, there is a small scale head and shoulders forming, and we have just finished the second shoulder. The rally we have been experiencing was nothing more than a dead cat bounce up from the support from the last low (previous support on 9/10 & 9/11), which forms the neckline of this new, smaller head and shoulders formation. The inability to close above 11,250 is confirmation of weakness in the rally, because the real body of today’s action was not strong enough to close over the resistance offered by the mid-Bollinger Band MA (I use the 20/2.4). In addition to this, both rally days took place amidst lower than average volume, which means the rally was not highly endorsed by the majority of investors.
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Also, don’t forget that all major moving averages have not only turned down dramatically but we are failing to even get back near them during our rally days.
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What I expect: Another sell off in the next week
When we’re in the clear to buy long: When the DJIA closes over 11,900 three or more days in a row.
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     Another thing I look at to determine market health is the performance of several big stocks... stocks like Amazon, Apple, IBM, Express Scripps, Goldman Sachs, Mastercard, Google, Black Rock Inc., etc.
     On days when the market is gaining over a hundred points, and certainly over 300 points, I am suspicious when the majority of stocks I consider to be “strong” in a bullish market are closing substantially down. During the last two days, look at the poor performances from industry heavies such as AMZN, AAPL, NFLX, AZO, PCLN, KBH, ESRX, and MA.
     The Health of Financial Institutions is in Question.
    For example, look at Mastercard. This stock has been a favorite of mine since it’s IPO in 2006. It has been a favorite because it is something I refer to as a “runner.” Historically, when the market goes up, Mastercard soars. It’s percentage gains usually beat the majority of bullish stocks in the market (as with the others listed above).
     Not only has it’s price action been completely uninspiring during the last 2 days of market rally, but it has also failed to break into the territory dominated by the downward price bar on the 21st, reinforcing the resistance created by the lows of the price bars on the 19th and 21st. Volume in this stock during the rally has also been unusually light.
     Now onto the more technical... When looking at a one-year chart of Mastercard, notice the inverted head and shoulders formation ending on April 1st. If you draw a trend line across it’s tops beginning on Nov. 5th, and continuing straight across, you will see the price bar that signifies a breakout to the upside on April 4th. Here is where I begin labeling wave 1 of a standard motive wave pattern, according to Elliott’s Wave Theory.
     Wave 1 is a standard impulse wave, meaning it proceeds relatively straight, in an upward manner. This first wave peaks (ends) at a high of $286.80 on May 3rd, and wave 2 begins, following a single zig-zag pattern, a pattern that is highly common in number 2 and 4 waves. (the zig zag is typically a correctional pattern, and comes in wave sequences of 3 rather than 5). On June 29th we springboard up into wave 3, which peaks on July 7th at $322.27... and we proceed to wave 4, another zig zag pattern that is slightly “flatter” than wave 2. On August 3rd, we springboard once again into wave 5. You may notice that this wave looks different from the others. According to my analysis, wave 5 is what we call an “ending diagonal wave,” a special type of formation that occurs primarily in the 5th wave position when the previous move has gone too far, too fast.
     Ending diagonals take a wedge shape within 2 converging lines. Each sub-wave divides into 3’s instead of 5’s, which is otherwise a corrective phenomenon. Ending diagonals are termination points of larger patterns, indicating exhaustion of the larger movement. In other words, the way I see it is that Mastercard is due for a pullback.
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What will I do?
I bought FAZ, a leveraged ETF that is short financials. Another good one that is leveraged is SKF.
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Other ETF’s to keep an eye on...
ZSL / SLV (learning to play these against each other could prove highly lucrative, we made over 30 % in two days on ZSL last week)
DTO (short oil)
EDZ (Emerging Markets)
DRV (short real estate)
QID (short the Nasdaq)

 

 

COMMENTS: Thursday (9-22-11) the Dow closed at 10,733.83 for a loss of 391.01 points.
 
Thursday the Dow completed the head-and-shoulders continuation pattern. The implications are quite bearish. If the Dow closes significantly below the neckline (some would argue that it has already closed below the neckline, but even on that basis we would not say the penetration is significant), the target for the Dow will be in the vicinity of "X" in the above chart (we have expanded the chart of the Dow to give you some idea of the magnitude of the possible decline ahead. A significant breakdown through the shoulder line is not a necessity. However, a breakdown appears to us to be more probable than a turnaround at this point. We could have a "bounce" but not likely a turnaround. Our traders have been anticipating this for well over a month, though we try to keep web site comments focused on the present (what is) rather than on what we think ought to happen eventually. If support at "E" cannot hold the Dow in check, then we would expect a decline at least to 10,000 (possibly to the 9800's). We did short silver by buying ZSL. We reported this today during market hours because it was contrary to what we had suggested yesterday. That brings up something that should be emphasized. All our comments are "fluid." That is, any comment that expresses a preference for a particular stock or group of stocks may be reversed shortly after the comment. Therefore you are advised not to take any comment expressed here to be a personal recommendation for you. All our comments are subject to immediate change and there may not be any announcement of that change. We are traders, and our buy or sell orientations can "turn on a dime." Volume increased on today's decline, supporting the notion that there is more decline ahead. Most of today's decline took place within the first 10 minutes of trading. After that, the Dow continued to drift downward until a slight increase in positive momentum occurred in the last minutes of trading (but nothing significant enough to keep the market from closing with a bearish Tick). With regard to the R.C. Allen system, the primary moving averages remain in a sell configuration. The 4-day moving average, which had risen above both of the primary moving averages to warn of a possible buy signal, has now returned to the standard configuration for a sell signal (it is below the 9-day average and the 9-day average is below the 18-day average).  

 

 COMMENTS:  Tuesday (9-20-11) the Dow closed at 11,408.66 for a gain of 7.65 points.      
Tuesday the Dow started with an early morning rally but ran into a "wall" at about 11:10 a.m. EDT.  Yesterday we remarked that "...we had expected the Dow to begin its decline after meeting heavier resistance."  Today's action took the Dow 149 points higher to 11,550.22.  A  comment we made on Friday (9-16-11) places this action in context.  Then, we said with reference to the head-and-shoulders pattern we saw developing  "...The pattern is incomplete, but if it continues to develop, then the current thrust will probably take the Dow not much higher than somewhere between 11,530 (about the high for today) and 11,555 (about 45 poiints above today's close). At about 11,555 the Dow will begin to encounter additional resistance at the horizontal blue line just below the letter 'C.' Resistance will increase from then on as the Dow approaches the horizontal blue line just above the letter 'C.'"   That resistance, is what stopped the Dow's advance today.  Yesterday's decline seemed a bit premature to us, prompting us to remark  "...it appears to have begun its decline while that heavier resistance is still a day or two away from an encounter."  Today, the Dow drew near that resistance during the middle hours of the session (note that today's high was at the horizontal blue line below "C" that we drew on 9-2-11).  We are still somewhat disappointed that the Dow did not press a little higher before swooning, but we may see yet another attempt before the expected decline.  If the Dow were to decline from here, we would say that it satisfied our minimum expectation, though we had hoped for a greater show of strength.  We consider today's market action to be part of a short-term topping pattern that will likely culminate in a completion of the head-and-shoulders pattern (a decline).  We expect Tuesday's late-day decline to continue in the early hours of trading on Wednesday, barring significant news events.  Today's action did not constitute a breaking of the short-term rising trend.  From that perspective, today's action was within the probability envelope of the market's current volatility.  That means the decline cannot officially be said to have commenced yet, even though the market was in decline during the last 90 minutes of trading.  With regard to the R.C. Allen system, the 4-day moving average is above both the 9-day moving average and the 18-day moving average, giving an alert to a possible buy signal.  However, there is little convergence between the 9-day moving average and the 18-day moving average.  [Trendline "D" is not drawn according to the most commonly accepted rules for drawing support lines, but it is intended to provide an early indication of a breakdown, should it occur] 

COMMENTS:  Monday (9-19-11) the Dow closed at 11,401.01 for a loss of 108.08 points.  
Monday the Dow started down on heavy selling. However, after the initial bout of selling, the Dow worked its way up to undo a good portion of its earlier losses. Volume was very light, and the Dow's real body closed very near the recent short-term rising trendline. Not only that, but the decline was a tad early in our estimation, though the height of the right shoulder was about right. Even though today's decline was within the boundaries of the scenario we were expecting, we had expected the Dow to begin its decline after meeting heavier resistance. Instead, it appears to have begun its decline while that heavier resistance is still a day or two away from an encounter. A textbook scenario would call for the Dow to continue its decline tomorrow. Though the probabilities do favor that, the market has been somewhat "messy" in its pattern developments recently. Therefore, do not be surprised if there is an early morning rally tomorrow. Even if there is, the next significant development for the Dow should be the finishing of the head-and-shoulders formation that has been under development since 8/9. If there is a rally tomorrow, we would consider it to be part of a short-term topping pattern that would be a lead-in to a completion of the head-and-shoulders pattern (a decline). At this point, we need more data to be more definite in parsing recent market behavior. We should have better clarity tomorrow. As for the R.C. Allen system, the 4-day moving average has crossed above both the 9-day moving average and the 18-day moving average, giving an alert to a possible buy signal. As we said before, whipsaw signals are common to a trend-following system when there is no trend. [Trendline "D" is not drawn according to the most commonly accepted rules for drawing support lines, but it is intended to provide an early indication of a breakdown, should it occur] 

COMMENTS: Friday (9-16-11) the Dow closed at 11,509.09 for a gain of 75.91 points.      
Friday the Dow closed decisively above "F" on heavy volume.  At least some of the market's enthusiasm stems from the coordinated action of the European Central Bank, the U.S. Federal Reserve, the Bank of England, the Bank of Japan, and the Swiss National Bank to make sure that European banks have unlimited dollar funding for the rest of the year.  We have removed "F" and the Fibonacci arcs from the above chart because they no longer have relevance.  The penetration of "F" occurred on heavy volume.  Since 8/9 the Dow has been developing a potential head-and-shoulders pattern.  In this case, it is a "continuation head-and-shoulders," and those patterns warn of a probable continuation of the trend that was in place before the head-and-shoulders pattern began to form.  That trend was down.  The pattern is incomplete, but if it continues to develop, then the current thrust will probably take the Dow not much higher than somewhere between 11,530 (about the high for today) and 11,555 (about 45 poiints above today's close).  At about 11,555 the Dow will begin to encounter additional resistance at the horizontal blue line just below the letter "C."  Resistance will increase from then on as the Dow approaches the horizontal blue line just above the letter "C."  Upside momentum was less today than it was yesterday, and it was less yesterday than it was the day before.  Advancing stocks outnumbered declining stocks 3.13 to 1 yesterday but only 1.03 to 1 today.  Up volume was greater than down volume 8 to 1 yesterday but only 1.29 to 1 today.  It appears that the Dow is in a short-term topping pattern.  The mark of strength today was that the market did not decline before the weekend, even though momentum was waning.  That gives rise to speculation that the topping pattern may not continue once the weekend is behind us.  As for the R.C. Allen system, the 4-day moving average has crossed above both the 9-day moving average and the 18-day moving average, giving an alert to a possible buy signal.  As we said before, whipsaw signals are common to a trend-following system when there is no trend.  [Trendline "D" is not drawn according to the most commonly accepted rules for drawing support lines, but it is intended to provide an early indication of a breakdown, should it occur]
COMMENTS: Thursday (9-15-11) the Dow closed at 11,433.18 for a gain of 186.45 points.  
Thursday the Dow closed above "F." Trendlines usually have a little elasticity, and it sometimes happens that they are penetrated one day but the following day the resistance prevails. It will be interesting to see if the Dow closes below "F" on Friday. Today's close at the high and the large closing tick suggest that the market has enough strength to continue the upward push early in the day tomorrow. The ratio of upside stocks to downside stocks was greater today than yesterday, and the same thing can be said about volume. This move has breadth of participation. Many stocks are taking on a bullish aspect. Therefore, on the surface, today's action looks strongly bullish. The main thing that bothers us about today's action is that volume was on the light side. Also, please note that since 8/9 the Dow has been developing a potential head-and-shoulders pattern. If that pattern continues to develop, then the current thrust will probably take the Dow no higher than about 11,530 (but it could abort before that). There are two basic categories of the head-and-shoulders pattern. One is the reversal pattern and the other is the continuation pattern. After a stock has had a sustained advance or decline, it may trace out a reversal pattern commonly called a head-and shoulders or inverted head-and-shoulders, respectively. However, after an extended decline, a head-and-shoulders pattern that looks just like the one commonly seen after an extended advance is known as a continuation head-and-shoulders. Its shape is inverted relative to the reversal head-and-shoulders that you commonly see after an extended decline. Since we have just had a decline, the possibility that we are seeing the development of a continuation head-and-shoulders pattern has bearish implications (if you are a bullish investor, you do not want to see the stock break below the shoulder line). We would like to see a strong assault on "C," but it is doubtful that the market can pull that off at this time given the current uncertainty about sovereign debt in Europe. We have also noted that upside momentum was less today than it was yesterday, suggesting that the market may be losing steam as we approach another weekend. The lines of demand and supply that will ultimately define this market's direction are at "E" and "C" respectively. Currently, we are waiting to see if the market can remain above "F." If it can, then "C" will be the next obstacle, and there is hope for the continuation of this rally, at least for a few more days. Though there are many bullish aspects to today's action, we will reserve judgement for another day. There are considerations (lack of volume and declining momentum are two) that make us dubious about the probability of this surge persisting. If the Dow can stay above "F" tomorrow, that might help us become a little more bullish (but that would be contingent upon other bullish market configurations). As for the R.C. Allen system, the three averages are now aligned correctly for a selling predisposition. The 4-day moving average is also threatening to cross above the 9-day moving average. As we said before, whipsaw signals are common to a trend-following system when there is no trend. We will probably remove "F" from the above chart after the weekend. [Trendline "D" is not drawn according to the most commonly accepted rules for drawing support lines, but it is intended to provide an early indication of a breakdown, should it occur]
COMMENTS: Wednesday (9-14-11) The Dow closed at 11,246.73 for a gain of 140.88 points.  
Wednesday the Dow declined to a point just below line "D" and then, predictably, buyers entered the market and drove the Dow to a point just under the declining trendline "F" when, predictably, sellers entered the market causing the Dow to back away from resistance. We are inclined to remove both "D" and "F" from the above chart because time alone will render them both inconsequential soon. However, we will leave them there a little longer for reference purposes. [Trendline "D" is not drawn according to the most commonly accepted rules for drawing support lines, but it is intended to provide an early indication of a breakdown, should it occur] The lines of supply and demand that will ultimately define this market's direction are at "E" and "C." Since the Dow backed away from "F" today, the dominating trend is still down. We did note that volume declined between 10:30 a.m. and 12:30 p.m. (the first two hours of the market's climb after the initial decline). Then, as the market continued to climb, volume began to expand and continued expanding to the close. That fact combined, with a bullish closing tick, suggest a positive opening tomorrow (barring negative news events in the meantime). Since today's action provided no significant changes in the Dow's configuration (in price or volume), there is no need to modify anything here that was said Monday. In order to climb significantly higher, the market must still overcome the modest overhead resistance exerted by the declining trendline labeled "F," resistance from the region labeled "C," resistance from the 50-day moving average, and resistance from the 200-day moving average. The fact that the 200-day moving average and the 50-day moving average are both declining has bearish implications (each indicates that an overall negative momentum prevails in the market with respect to those time frames, and that bullish investments taken with respect to those time frames must fight against that prevailing momentum). If support at "E" is able to stop the Dow's short-term decline, we will then probably see the market continue to swing up and down within a trading range between approximately "E" and "C") as we suggested last month. That would be the first step in reversing the prevailing negative momentum. If support at "E" cannot stop the decline, there is a significant probability that the Dow will continue down to about 10,000. However, there are levels of lesser support on the way down to 10,000 that could, theoretically, function as reversal points. If the Dow were to decline below "E," we would discuss those support levels as we approach them. As for the R.C. Allen system, the 4-day moving average is now below both the 9-day average and the 18-day average. The 9-day average is still declining, and it intersected the 18-day moving average yesterday (see large Dow chart above). We will add an arrow indicating the new sell signal next time. As we said before, this signal will probably turn out to be a whipsaw.  
COMMENTS: Friday (9/9/11) The Dow closed at 10,992.13 for a loss of 303.68 points.      
With no encouragement from Europe or anything other than a "proposal" from Obama, the market retreated in the face of overhead resistance from the declining trendline labeled "F," the region labeled "C," the declining 200-day moving average, and a still declining 50-day moving average (no intermediate-term signs of a turnaround in the making).  With the heavy resistance just ahead and nothing substantive from either Washington or Europe, the market did not have strength enough to make a run at the overhead resistance.  The market needs some reassurance.  That will come about by a successful test of the low reached a month ago.  If that reassurance comes, we will likely see the market trade in the original range (between "C" and "E") that we postulated last month.  We are still witnessing a shakeout of weak holders of shares.  The market will have to build a respectable base before it will be able to make an advance with sufficient stamina to punch its way through resistance at higher levels.  That means we will have more rallies and more plunges (all within the trading range described) until the remaining weak share holders give up and go elsewhere.  Incidentally, we may soon see an R.C. Allen sell signal.  It is common to see whipsaw signals generated by a trend following system when there is no trend.  If the market can stay above "E," then long-term investors might consider taking positions.  Now would be a good time to look for candidates.  Stocks that are consistently strong during these downturns should be worth including on a watch list.  Concentrate on setups.  We monitor a wide array of both conventional stocks and ETFs.  Among the ETFs is a large assortment of inverse ETFs.  Therefore, whether the market is rising or declining, we will likely have opportunities for profit.  Thus, if we see a good setup and a trigger event, we may take a position regardless of whether it is bullish or bearish.  If you use the same approach, always be prepared for quick reversals with tight stops.  As for the R.C. Allen system, the 4-day moving average is now below both the 9-day average and the 18-day average.  Though the 9-day average has begun to decline, it has still shown no significant convergence with the 18-day moving average (see large Dow chart above).  
 
 Cautionary Notice: Sometimes we may say that certain areas of the market are attractive to us.  Never interpret those comments as recommendations.  By the time we make a comment we may already have a profit in those positions.  It may also be that those areas are of interest, but we have not seen any trigger events that would cause us to buy.  We give no guarantee that we either have positions in the areas mentioned or that if we do have positions, that we will be in them very long.  Another thing you should bear in mind is that we use a multitude of systems and disciplines.  One of our traders using one system may buy a stock at the same time another trader using a different system will be selling the same stock.  That happens because the systems have different criteria and different time horizons.  Two systems that do not always agree can both be extremely profitable.  It is only important to make sure that each system is followed without second-guessing it.  Also, we may expect a stock to go much higher over time.  However, that may not prevent us from selling to lock in a short-term profit.  There is nothing that prevents us from buying it again at any time we think we can make another profit.  We are not day traders, but we may sell a position the same day we buy it.  We may hold a position a few days or a few months.  Our time horizons differ for each position and are based on how we think we can optimize our returns.  Theoretically, we could hold a position for a year, but the fact is that strong trends do not generally last that long.  That is relevant for us because we prefer to focus on surges and dynamic trends in order to get more "bang for the buck."  What we call dynamic trends are relatively brief periods of price acceleration that are rarely more than a few months in duration and often much less.  However, on the site we often discuss longer-term perspectives on the market. 

(Friday 9/2/11) The Dow closed at 11,240.26 for a loss of 253.31 points.  

1. From a short-term perspective, the market is in a trading range between the low of 8/8 and the horizontal band of resistance at "C". We have replaced the single line at "C" with two lines outlining that band. Though the resistance at C is moderate, it was enough to turn the Dow back (see large Dow chart above).
2. The Summation Index (intermediate-term indicator) is now compressing the distance between postings. This has bearish implications, and it suggests that the index will begin to decline soon. (See below, Chart 2).
3. The McClellan Oscillator reading is no longer in the "extreme" overbought region. In fact, it appears that it is about to cross the zero line (See below, Chart 2 and the explanations there).
4. Please note the Chande Momentum Oscillator (Chart 5 below) and compare it with the pattern of the NY Index (same chart larger window). The CMO has now broken its recent uptrend. It has just crossed zero and is declining. Remember that this indicator does not have a damping or delay factor as does the RSI, so it gives an immediate reading of current momentum relationships. It also has both upside and downside momentum components.
5. The R.C. Allen recently gave a buy signal on the Dow. However, the 4-day moving average has started to decline. Remember that we alerted you to the possibility that the recent buy signal may result in a whipsaw. Moving average crossover systems are particularly prone to whipsaws in a non-trending environment. (see large Dow chart above).
6. The MBI shows that the market still has a negative bias, and it is no longer giving us an optimistic outlook regarding short-term bullish positions. Those should be left to experienced traders who have the discipline necessary to implement risk control strategies for now. [we are also seeing increasing numbers of good bearish candidates, such as ETFs that sell short]
7. The stochastic oscillator indicates that the market is in a short-term overbought condition (early stage overbought with a reading slightly over 70) (see below Chart 5).

We expect the market to be in a short-term declining trend for now. Prepare for the Dow to test the previous low reached on 8/9. We do not expect it to decline below that low at this time. However, there are some good arguments for expecting a deeper decline later. Those arguments are much too complex and theoretical to go into now, and that outcome is by no means certain. Our approach is to take one day at a time, because we believe that is the best way to proceed in this market. Inverse ETFs, gold, and silver are making money for share holders.
(Thursday 8/25/11)  The Dow declined sharply until about 7:50 a.m. (Pacific). The rest of the day it remained in a trading range between11,106.76 and 11,229.40, finally closing at 11,149.82 for a loss of 170.89 points. Early Thursday morning we said that the Dow must still contend with the resistance (selling pressure) exerted by trendline "B" in the above chart. Given the fact that the trendline is declining, and that each day the price action is to the right of the previous day's action, even a market that is less than robust must eventually break through such a line. The only thing that could prolong the influence of that line is a decline on Friday. Even then, the effectiveness of that resistance is not likely to last more than a week. We note that volume increased during the last 30 minutes of trading, a time during which the Dow was declining. Volume was also greater than average for the day between the open and 7:50 a.m., also a time when the Dow was declining. Today's intra-day volume activity revealed a greater commitment on the side of lower rather than higher prices. Now look at the volume figures on a daily basis. On 8/18 and 8/19 the Dow declined and volume was greater on those days than on any of the days afterwards when the Dow was rising. The volume of those two days was not panic-related (associated with the plunge in prices that began 7/26) because the volume on 8/12, 8/15, 8/16 and 8/17 was lower than on 8/18 and 8/19. We conclude from these facts that both today's intra-day volume pattern and also recent daily volume activity tend to favor moves to the downside. If the Fed makes a stimulus announcement on Friday, the Dow will likely head for line "C" in the chart. Be prepared for the Dow to decline just in case the Fed does not make a stimulus announcement. Footnote: Claims for jobless benefits increased 5,000 to 417,000 in the week ending August 20th.  
Wednesday (8/24/11) Wednesday, the Dow rose in the early minutes of trading.  It encountered the purple line labeled "B" in the above chart 20 minutes after the open and penetrated it, but as the selling pressure mounted, it declined back below that line.  Then between about 10:20 a.m. and 11:40 a.m. it struggled with that resistance until it finally broke through (about 11:45 a.m.) and stayed above it to close at 11,320.71 for a gain of 143.95 points.  Because we believe that line "B" will no longer be a factor, we will remove it tomorrow.  Volume was less than on Tuesday and the range of today's move was also less.  The horizontal blue line labeled "C" in the chart is the next obstacle for the Dow.  Yesterday we said,"At this time, it is more probable that the Dow will make it to line C. What it does when it gets there will be significant. If it falls back under the selling pressure it encounters there, then it is likely that the market will be confined to a trading range between the low of 8/9 and the horizontal line C. If the Dow breaks through the resistance at C, then it should be able to rise another 332 points before the next test."  There is a good chance that the Dow will make it to C.  The market seems to be anticipating some kind of stimulus announcement from the Fed on Friday.  The probability is that the Fed will disappoint, and the market will decline.  Though this is mere speculation, given previous pronouncements by the Fed, it is reasonable to make that assumption.  Such news on Friday would give the market a "reason" to decline in the vicinity of that resistance.  We shall see.    Footnote: The Federal Housing Finance Agency said home prices rose .9% in June.
Tuesday (7/26/11) the Dow declined steeply until about 7:05 a.m., tried to recover, then resumed its swoon at 11:20 to close at 12,501.30 for a loss of 91.50 points.  The market is beginning to express its angst over the ideological deadlock in Washington.  The decline is the beginning of the market's effort to factor into prices a failure to compromise on the budget.  However, volume was light.  There is no sign of panic selling.  The summation Index has started to accelerate downward.  The MBI, which had been moving toward a positive bias is now backing away from that event horizon.  The Chande Momentum Oscillator has crossed the line into negative momentum territory.  Money has started to flow out of the market, but not in any extreme way.  A positive for the day is that the market's decline showed respect for the third Fibonacci arc, closing at about that level.  However, given the market's current sentiment, it is doubtful that the Fibonacci arc can hold.  If the market can stay positive through the first hour of trading tomorrow, it is likely that it will hold.  If the market is negative most of the first hour, expect it to be penetrated.  Today was merely a continuation or yesterday.  The action was not what we would consider significant or defining.  Line "A" in the above chart and the horizontal band of support represented by the two red lines (spanning about 50 points) will be our next support.    If that support were to fail, the next support would be at about 12,300.  We remain cautious, but there are opportunities in the market.  In fact, we may jump at opportunities to take advantage of the more compelling setups when we find them.   Footnotes: AK Steel AKS declined 17.46% after the company predicted there would be a drop in third-quarter shipments because of increased costs for raw materials. 
Monday (7/25/11) the Dow plunged in the first 5 minutes, and reached its low point within the first 10 minutes of trading.  It then recovered perhaps 75% of its loss by 10:05 a.m. before declining again to close at 12,592.80 for a loss of 88.36 points.  The resistance at 12,750 was once again too strong for the Dow given the uncertainty surrounding budget negotiations and the overhanging shadow of default.  The Dow declined through support at the second Fibonacci arc, but today's volume was the lightest we have seen in about 20 days.  Traders do not have the conviction needed to prompt them to either buy or sell heavily.  It's as if they are "holding their fire" until it is clear what their target is.  Corporate earnings have generally been good, but the market's response to good earnings has been muted because of uncertainty over the nation's budget.  We have drawn a short-term rising trendline labeled "A" in the above chart.  By itself it could offer some modest support.  However, notice how the third Fibonacci arc, the dashed upper red horizontal line, and line "A" nearly meet between about 12,433 and 12,451.  If the Dow were to decline to that level, those three alignments of share demand would offer combined support.  If that support were to fail, the next support would be at about 12,300.  At this point, we are also getting close to a sell signal from R.C. Allen's system.  However it would probably take a few days of significant downside action to bring that to pass.  The Dow is beginning to hint that it is losing its very-short-term positive momentum.  We are cautious right now.  Like so many others, we are waiting for the balance to tilt a little more in favor of the bulls before we become aggressive buyers.  Until then, we are open to taking advantage of the more compelling setups when we find them.   Footnotes: AK Steel AKS declined 17.46% after the company predicted there would be a drop in third-quarter shipments because of increased costs for raw materials. 
Wednesday (7/20/11) the market drifted in a narrow trading range all day and finally closed at 12,571.91 for a loss of 15.51 points.  After a 200 point rise, it is normal to see some profit taking.  It would have been normal to see a bigger pullback than we got today.  However, we still need a verification of progress in Washington or additional positive earnings reports to keep things going.  American Express and Intel are about to report, and positive reports should help the market maintain an upbeat sentiment.  Otherwise, we could see something like what we saw on May 31st.  Then, the Dow broke its downtrend and even rose a second day.  After that, it resumed its decline.  Some are thinking the Republicans will let the U.S. Default because they do not like Obama, and the default would be a blemish on the democratic leadership.  That is very unlikely.  Both sides know the voters will hold them both responsible.  The leadership of both parties are trying to do what is best for the country.  They just have conflicting views on what is best.  If the current momentum surge is going to continue, then we want to see the Dow stay above 12,496 tomorrow.  A decline below that figure on the close would indicate a weakening of that momentum and suggest that the decline that began on 7/8/11 is still in effect.  This is the level at which probabilities change from favoring an advance to favoring a decline.  Do not think of it as a hard line.  A close below that figure would shift probabilities, but that does not imply certainty.  It's like the weatherman who says there is a 55% probability of rain tomorrow.  It may not rain but the odds are greater that it will.  There would be only a 45% probability that it will NOT rain.  Even so, it may not rain.  If the Dow can stay above that figure, the odds favor a continuation of the advance, and our first target to the upside will be 12,750 on the Dow.  If you are a buyer, focus on good "setups" and "trigger events" (some are discussed and illustrated on the "Stock Alerts" page).  We are open to taking bullish positions for our own accounts.  Protect every position with a stop loss.
Monday (7/18/11) the market was in a steep decline from the open until about 8:55 a.m.  After that, it commenced a gradual climb that took it up 91 points from the low to close at 12,385.16 for a loss of 94.57 points.  Support (buying pressure) from the 50-day moving average, the lower of the two horizontal red lines, and the second Fibonacci arc turned the Dow around to a resting place at the 18-day moving average (red moving average line) and the second Fibonacci arc.  The long candlestick shadow would suggest a possible reversal (selling climax) but for the fact that volume was light.  We estimate that these supports can hold under selling pressure a little longer if the selling does not become too intense.  If the Dow falls below this support, there is another band at the 3rd Fibonacci arc.  That arc has additional support from previous supply-demand alignments in March, April, and May.  The McClellan Oscillator is approaching an extreme reading (oversold), as is the stochastic oscillator, but oversold conditions can persist for a time.  Essentially, the market is declining because there seems to be little progress regarding debt either in Washington or across the Atlantic.  The decline is the way the market is discounting the probability of a failure to come up with some significant solution to  national debt problems here and abroad.  Positive earnings reports from major companies would be helpful.  It is still early in the reporting season.  Our own expectation is that we will see some good reports soon. 
Friday(7/15/11) the market traded sideways with a range from low to high of less than 100 points.  It finally closed at 12,479.73 for a gain of 42.61 points.  For the fourth day in a row, the band of support that begins at the broken red line in the above chart has contained the downward excursion of the Dow.  However, the Dow is gradually making deeper penetrations into that region of support.  So, although we had a market gain today, the low was lower than it was yesterday.  Also, the high of today's real body is lower than real body of yesterday.   Currently, the Dow is beginning to encounter buying pressure (support) from the lower of the two red lines.  We do think the market is discounting to some extent a budget agreement in Washington.  Therefore, when the agreement is announced, the Dow may not react quite as strongly as it would otherwise, but it should have a strong reaction.     We are still prepared for the Dow to test support not only at the lower horizontal red line, and maybe also at the 50-day moving average (the dotted black line is the 50-day moving average).  We have drawn three Fibonacci arcs in the above chart.  Notice in particular the proximity of the middle arc to support from the lower horizontal line and also the 50-day moving average.  As we have demonstrated here on various occasions, the Fibonacci arcs can offer significant support.  There should be some significant support in the general vicinity of the nexus of the three.  The main negative we see there is the fact that the 50-day moving average is in decline.  We would expect much more from that average if it were rising.  The market is still waiting for a reason to do something.  An acceptable budget compromise in Washington would give the market a reason to rise.  In the meantime more good earnings reports should help lighten the downward pressure.  The Dow is not as likely to plunge as it is to slowly work its way down through support.  News could come out of Washington any day now, and that should have considerable impact on market sentiment (either positive or negative, depending on whether or not Congress will allow the country to default on its debt).  Our own view is that a default is extremely unlikely.
Thursday (7/14/11) the market rose strongly on a positive jobs report, but that lasted until about 7:25 and then it commenced to decline after Bernanke said the Fed was not prepared to do anything to stimulate the economy at this time.  The Dow encountered support at 10:20 a.m., bounced, and then returned to that same support to close at 12,437.12 for a loss of 54.49 points.  This the the third day in a row that support at the broken red line has checked the Dow's decline.  We are still prepared for the Dow to test support at the lower horizontal red line, and maybe also at the 50-day moving average (the dotted black line is the 50-day moving average).  This is a very difficult market to call.  The Dow is resting on support.  Will it fall through that support or rise?  There is no incentive for the market to rise.  Our take on the situation is that the market is essentially treading water.  It is waiting for a reason to do something.  An acceptable budget compromise in Washington would give the market a reason to rise, and it would probably do so with vigor.  A failure to reach an agreement would cause a slump.  An outstanding earnings report by a major company would give the market a temporary boost (something to do while it is waiting for congress to make a deal).  Even though there is considerable ambiguity right now, short-term traders can still take advantage of good setups for swing trades, but good setups are not easy to find.  Probably the best source of good candidates right now is the Strongest Stocks list.  It is possible to be in and out of those positions with a profit before the market does anything major.  A compelling setup and subsequent trigger event could probably do well against the early stages of a decline from here.  That being said, there is a limit to how long the market will respond favorably to the support that is currently keeping the decline in check.  Just as a swimmer cannot tread water indefinitely, so the market cannot continue to levitate without additional fuel.  If it does not find a reason to keep its current level (a good earnings report would help), it will decline to test a lower level of support.  Check out the McClellan Oscillator and the Summation Index in Chart 2 lower on this page.  Note that the MACD (Chart 6) is still poised for a decline.  We are concerned that the Summation Index has started to decline.  Be prepared for that testing to begin at any time.  The Dow may be able to levitate a little longer, but it would be wise to be prepared.  Even if it begins to work its way down from here, it is likely to be a slow decline rather than a "plunge" to lower levels.   Footnotes: J.P. Morgan Chase (JPM) rose 1.84% after the company reported increased investment-banking fees caused second-quarter net income to be greater than estimates ... Stocks then declined after Bernanke told Congress the Fed wasn’t “at this point” ready to do anything to spur economic recovery ... Marriott International (MAR) declined 6.6% as a result of its uninspiring outlook for 2011 ... ConocoPhillips (COP) rose 1.63% after the company said it would split into two companies ... The government reported that retail sales rose in June and that wholesale prices declined 0.4% last month ... The market rose strongly after the government said initial applications for jobless benefits dropped to a three-month low last week.   
Wednesday (7/13/11) the Dow climbed 157 points in the first hour of trading on news that the central bank would consider additional stimulus. Then it drifted in a shallow decline until about 10:40 a.m., when it began a much steeper decline, finally closing at 12,491.61 for a gain of 44.73 points.  People sometimes get frustrated (and we have been criticized) because we never seem to be satisfied, whether the market declines or rallies.  The problem is that our many years of experience with the market has taught to always be prepared for the worst, even when things look the rosiest.  Therefore, we tend to point out potential problems when we see them.  For example, we could talk about the tremendous upside move we had early today, signaling a reversal.  We could downplay the fact that the market closed near the low end of its trading range, and emphasize the fact that the Dow gained 45 points after encountering support at the broken red line in the above chart.  However, the market is much more complex than that.  If you only want clear buy and sell signals without all the ruminations about support and resistance, look at the chart and see what the system on display is saying.  That is the reason it is there.  Right now, the market is still in buy mode with a cautionary alert due to the downward crossing of the 9-day moving average by the 4-day moving average.  That is the context of everything being said here.  These comments are only intended to add a little dimension to the knowledge of some of our visitors.  More could be said, but we only skim the surface here.  
     Today's market low does reinforce the notion that the horizontal line drawn in the above chart represents significant support.  For two days in a row, it has put a limit on the negative excursion of the Dow.  So, what are we complaining about now?  We are not satisfied with the way the market closed.  If we look solely at the real bodies of the Dow's candlestick price pattern, today's action was not a breakout.  Volume was also light.  If we were to drop the candlesticks and plot the chart using the full range of each day's excursion with no indication of opening or closing points, the pattern would look like a reversal in the making.  Our observations about potential problems are not intended to keep people out of the market.  Even when we sound most negative, we may be willing to take new bullish positions ourselves if we find compelling setups.  Our comments are intended simply to help you notice some market conditions that might help you when making your own decisions.  There will almost always be something negative to notice.  Does that mean we should ignore the the potential problem areas?  Being aware of them helps us to remember to protect our assets.  Andy Grove of Intel once said "Only the paranoid survive."  He made sure that Intel was always running scared.  With that philosophy, he guided the company to a position of dominance in the chip industry.  we are not saying you should be scared when you invest.  We are only saying that you should be alert to potential dangers and plan accordingly.  
     There is obviously buying pressure being exerted at the line drawn at approximately 12,450.  We are still prepared for the Dow to test support at the lower horizontal red line, and maybe also at the 50-day moving average (the dotted black line is the 50-day moving average).  Because of the way the Dow reacted to support today, it seems somewhat less likely that the Dow will plunge deeply at this point.  We are waiting to see if there is any upside follow through movement for the Dow on Thursday.  That is pretty much where we are right now.  The Dow has left us with ambiguity.  We are at another minor "decision" point.  The action today while approaching the close was defined as disappointing and negative, though not negative enough to completely cancel out the day's gain.  If that momentum continues, the Dow will decline Thursday.  In that case, it will be testing support at the two red lines.  Yes, R.C. Allen's system shows the market to favor the buy side, but be picky.  Hold out for compelling "setups" and "trigger events."  (see the Stock Alerts page for a discussion of these).
Tuesday(7/12/11) the Dow traded sideways most of the morning, then at about 11 a.m. it surged about 74 points during a period of about 20 minutes before sliding to its close at 12,446.88 (for a loss of 58.88 points).  Today's action continued yesterday's decline, but the Dow is beginning to feel a little buying pressure from the support it is now approaching.  Notice how the price action was stopped abruptly at the upper broken line in the above chart.  The accumulation of buyers there held the price steady until the close.  For the last 15 minutes of trading the Dow inched toward that line.  Before that time, the Dow descended rapidly.  We doubt that the first line will be able to turn things around, but there is more support to follow.  One reason we doubt that the first line will stop the decline is the momentum driving this decline.  In the last hour of trading and while the Dow accelerated its descent, volume kept increasing (though it declined a little in the last 10 minutes).  In the 30 minutes before that last hour, the volume was decreasing as the Dow descended.  That revealed an underlying preference for rising rather than declining.  However, in the last hour that sentiment evaporated and a new bearish sentiment began to dominate.  The McClellan Oscillator has just crossed zero (see notes on this oscillator below), the Summation Index has started to decline, the stochastic oscillator just gave its second sell signal, and there is still extreme separation between the MACD and its trigger line (time for a reversal).  The Dow is now likely to test support at the lower horizontal red line, and maybe also at the 50-day moving average (the dotted black line is the 50-day moving average).  The way the Dow reacts to this support could tell us much.  Do not be overly anxious to buy right now.  Let's see if this support holds first.  If it doesn't, you will be glad you didn't commit to any new positions.  We are at what could be a critical juncture.  Waiting a day or two can make a big difference in your return on investment.  Hold out for compelling "setups" and "trigger events" (see the Stock Alerts page for a discussion of these).   
Friday (7/8/11) the Dow plunged the first five minutes, meandered sideways most of the day, and rallied the last 30 minutes of trading to close at 12,657.20 for a loss of 62.29 points. Today's action did not break the recent uptrend. The closing figure was within the probability envelope of the rising trend. In other words, the net result for today was statistical insignificance. We have repeatedly described resistance that the Dow (and the broader market in general) is encountering. We are not the only ones who see it. Since the normal result of a market approaching resistance when there is a great deal of economic uncertainty and a possible default on government debt is for the market to decline when it hits resistance, those who are aware of the resistance are prone to sell on the first excuse they can find to sell, because if they wait for the market to hit that resistance they will not be likely to get as good a price for their shares. That anticipatory selling is what happened today. Traders generally expect corporate earnings to improve, but it may take a couple of weeks before sufficient data is available to draw conclusions about the health of corporate America. In the meantime, there is the ominous cloud of overhead supply (a lot of shares for sale a little higher). That was the contest when the first two items in the footnote below were reported, and traders had all the excuse they needed to sell. However, the selling mentality was mitigated near the close of trading by the prospect of improved earnings numbers (Alcoa reports Monday). That is, there were other traders who wanted to position themselves early for those good earnings reports. The uncertainty surrounding those coming reports is what kept the rally at the close from being stronger (also, there was the coming weekend and that always heightens uncertainty). If we get some good earnings and upbeat guidance next week, the market will disregard the weak employment report. Since the trend has not changed and that trend is (until proven otherwise) higher, we would suggest that you simply adjust your stop losses and focus on setups among strong stocks. Do not buy unless you see a compelling "trigger event." Market and economic ambiguity requires, we think, this cautious approach to taking on new positions. Short-term the market still has a positive sentiment. We are still more inclined to look for short-term buy-side investments than sell-side investments. The next heavy resistance will occur at the two parallel red lines in the above chart. The first red line to be encountered (where resistance begins) is about 166 points higher on the Dow. Remember that the resistance is not a fine line. It is a band that begins at the first red line and extends to the second red line. There are no discernable signs at the present that the Dow is about to reverse. Footnotes: The Labor Department said non-farm payrolls rose 18,000 last month ... The jobless rate rose to 9.2% in June ... Google declined 2.67% after Morgan Stanley cut its stock investment rating and price target.
Wednesday (7/6/11) the Dow declined until about 7:20 a.m.  Our model showed a high probability at that time that the decline would continue and that the market would close with a modest deficit for the day.  However, the market then reversed course and rose until about 10 a.m. (Pacific), traded sideways, and closed at 12,626.02 for a gain of 56.15 points.  Volume was light.  We might interject a comment here about the accuracy of our model.  It tends to be accurate about 80% of the time.  However, news and sentiment changes may change the nature of the data flow after a particular model reading.  When that happens, model projections based on early data may prove incorrect.  Nevertheless, we think its projections offer valuable insight on how bullish or bearish we ought to be when considering new positions.    The Dow is overcoming resistance from the same overhead supply that drove the market down on June 1st.  Again, we try to stay with the trend.  Right now, the trend is higher.  Our model did show the shift in probabilities to a gain for the day at about 8:35 a.m.  After that, we would have had no objections to buying, but did not spot acceptable setups.  (perhaps part of that is due to the fact that we were preoccupied with software problems) We suspect that the market will drift upwards with little conviction until some important new earnings reports are released (companies begin reporting next week).  For a time, we think the focus of the market will be on corporate earnings.  We are inclined to be looking for short-term buy-side investments.  The next heavy resistance will occur at the two parallel red lines in the above chart.  That is a little more than 250 points higher on the Dow.  There are no measurable signs at the present that the Dow is about to reverse.  [We apologize for the fact that the chart of the Dow was somehow deleted yesterday.  Please do not hesitate to contact us if you see a problem like that.  It may seem to you that we should have seen it, but this site is large and we are usually in a hurry to get everything updated.  Sometimes we make modifications to a page and those modifications disappear when we hit the "save" button.  Then we have to make the changes over again.  Because all the algorithms are custom designed by us, the data cannot be simply downloaded and automatically posted.  Raw data is collected by our systems, but then it has to be processed by people.]   Footnotes:  The Institute for Supply Management reported that its services-sector index fell to 53.3 in June ... China’s central bank raised interest rates again ... Moody’s Investors Service reduced Portugal’s credit rating to junk.
Tuesday (7/5/11) the Dow traded in a narrow range throughout the day and finally closed at 12,569.87 for a loss of 12.90 points.   By recent standards, volume was a little light.  What we had, then, was a market that was approximately balanced between buyers and sellers.  Typically, when a market shows indecision after a strong move, a decline follows.  The market's behavior could be compared to that of an individual who is trying to make up his mind about what to do next.  The Dow is hitting resistance from the same overhead supply that drove the market down on June 1st.  The recent rise was unusual in that it was steeper than the previous decline.  However, we do not really know that the market is about to decline.  It has already performed much better than our expectations, and we try to stay with the trend, even if it does not make much sense.  Therefore, we will be taking our signals from the first hour of trading on Wednesday.  If the market is reasonably strong, we will be willing to buy.  Otherwise, we will keep our powder dry a little longer.  We suspect that the market in general is of the same inclination.  Next week begins another round of earnings reports.  The market will look for encouragement from them.  In general, though, we are of the opinion that the market's decline since the beginning of May has seen its low point.  The market's paranoia over Greek debt is probably over.  For a time, we think the focus of the market will be on corporate earnings.  If there is a decline, we would consider it to be an opportunity to buy at bargain prices (if we find attractive setups).  However, our trades will have a short time-horizon because of additional resistance we have previously described.  The next heavy resistance will occur at the two parallel red lines in the above chart.  There are no measurable signs at the present that the Dow is about to reverse. 
Friday (7/1/11) the Dow rose steeply until about 7:257:35 a.m., then it continued up more slowly until it closed at 12,582.77 for a gain of 168.43 points.  Volume declined on today's advance (not a positive sign).  The general sentiment of the market is positive.  If there is a decline, we would consider it to be an opportunity to buy at bargain prices.  We are willing to be buyers if we find attractive setups.  However, our trades will have a short time-horizon because of the resistance we see ahead.  We choose not to ignore that resistance, because it means that risk will be higher as we approach it.  Therefore, it is wise to be prepared for that increase in risk.  The next heavy resistance will occur at the two parallel red lines in the above chart.  In summary,  R.C. Allen's system has given a buy signal and the 4-day moving average is climbing in confirmation.  There are no measurable signs at the present that the Dow is about to reverse.  Keep stop losses adjusted in case there is a sharp decline and focus on the kind of stocks included in our Strongest Stocks lists, because they are least likely to undergo any significant decline if the market goes into another funk.  Also, The Valuator is a good resource for finding good buy candidates.  If you are not a subscriber, focus on good "Setups" and wait for "trigger events," as we have discussed here many times (some setups are illustrated on the "Stock Alerts" page).  Footnotes: The Institute for Supply Management said its index of manufacturing activity rose to 55.3% in June from 53.5% the prior month ... The Thomson Reuters/University of Michigan consumer-sentiment survey declined in June to a reading of 71.5 from 74.3 in May ... U.S. construction spending declined 0.6% in May.
    [The following blue text was our explanation (given previously) of why a decline would be helpful, and it has been left here for new visitors to the site who lack the context that our regular visitors have.  If the Dow were to decline to 12,000 or even plunge through it a little {even through line "A"}, that would shake out a few more weak holders of stock (the people who would be most likely to bail out and weaken the market's advance as the market encounters resistance at higher levels) and it would also give an opportunity for those who anticipate much higher market levels (the people who would be most likely to hang on to their shares as the market encounters resistance) to take their positions at bargain prices.  The market may then have the strength necessary to undertake an advance that has enough endurance to push through some of the overhead resistance that waits at higher levels.]             
(Comments for Wednesday 2/1/12) 2/1/12 Wednesday The Dow surged early, climbing to its high of 12,784.62.  It then traded flat for a few hours.  After about 1:35 p.m. EST, it began a decline that took it to its close at 12,716.46, resulting in a gain of 83.55 points.  Rumors have it that Greece will likely succeed at working out a deal concerning debt ... China’s official manufacturing survey beat expectations ... The Institute for Supply Management, reported that  U.S. manufacturing business expanded in January ... The Commerce Department said builders increased their spending in December (1.5% on construction expenditures) ... Automatic Data Processing said U.S. employers added 170,000 jobs last month ... Morgan Stanley jumped 4% after news that Facebook the company to lead its planned initial public offering ... Amazon.com  declined 7.7% after reporting that sales were less than analyst expectations.  Obviously, the market is again responding to news events.  News events, because they are unexpected and sudden, can move the market in a direction contrary to that called for by the technical and fundamental outlook prior to the news releases.  Today the Dow closed about midway between the mid-point of its Bollinger band envelope and the upper band.  It appears that the Dow is going to make another attempt to challenge the resistance at the two red lines in the above chart.  We are waiting for a breakout above the overhead resistance or a break below the Dow's short-term trendline.  A convincing close below the trendline (the one beginning 11-28-11) would be a significant sign of deterioration.  The uptrend has not been derailed as of Wednesday evening.  The red resistance lines in the chart are at about 12,823 and 12,880 respectively.  A convincing breakout above those lines would be a significant indication of strength.  Since the trendline is rising, the Dow will soon be squeezed into taking one course or the other.  With regard to the R.C. Allen triple moving average system, the 9-day moving average (blue line in the chart) is above the 18-day moving average (red line in the chart).  The 4-day moving average has declined below the 9-day moving average, warning of a possible sell signal.  


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