Everything except energy got sold on Friday and as a result there was some technical damage done to some of the major indices. The S&P 500, Dow and Russell 2000 broke down under their trendlines which have been in effect since last summer. The fact that volume declined on Friday is ne slight positive for the bulls though. It's also worth noting that the Nasdaq-100 (QQQQ) continued to show relative strength vs. the other major indices.
I've been having a really hard time finding any swing trade setups that i like this week. Given that earnings season is right around the corner, and I hate holding swing positions through earnings, that may not be such a bad thing. I'm sure there will be plenty of good setups in stocks in the days after they report. So I'll probably just stick to the indices for the next couple of weeks.
Here's the chart of the still range-bound Nasdaq:
The S&P finally broke that July trendline:
The Russell gave up its 50-day moving average as well as its August trendline:
And here's the Dow:
Two "downgrades" for the Russell today since it broke the 10 and 50-day moving averages.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
| Primary | Up | Up | Up |
| Intermediate | Up | Up | Down(-) |
| Short-term | Up | Down | Down(-) |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
How important is Friday's volume decline given that it seems (visually) that the volume is still above average?
You would ask a tough question. :d Volume on the S&P was a bit above the 50-day average according to TeleChart's data. But it was also above average on Wednesday and Thursday. One could certainly sum up the whole week as down on above average volume and take it as a negative. But I really don't know how big of a deal the slight decline in volume was on Friday. It could just be due to it being a Friday and people taking off early. (Or maybe it's because I didn't make any trades on Friday -- yeah right!)
Perhaps it was different sets of players making moves on W-T versus F. The index is tracking multiple sectors and several stocks, so expecting accelerating volume on the trendline break, like we would on a stock, might not be appropriate ... certainly some of the most punished sectors of W-T got some bounce on light volume on F ...
More shall be revealed.
:-?
I guess there's nobody trading the S&P futures off of technicals :|
Perhaps it was the exact same set of players all week. Who will ever know?
You're right in that we'll never know. The trackers (futures, ETF's) don't track accurately what the index does. Take a look at this chart of SPY:$SPX. If it were an accurate tracking mechanism, this SHOULD be a flat line.
http://stockcharts.com/h-sc/ui?s=SPY:$SPX&p=D&b=1&g=0&id=p25592781108
Here's the same chart on a shorter time frame.
http://stockcharts.com/h-sc/ui?s=SPY:$SPX&p=D&b=5&g=0&id=p78710234891
Here's the chart for DIA:$INDU.
http://stockcharts.com/h-sc/ui?s=dia:$indu&p=D&b=5&g=0&id=p78710234891
Now, which is "better" for candle charting the index?
What does SPY or any of the ETFs have to do with anything I was talking about? My chart was of $SPX, which broke its trendline and I was talking about people who trade $SPX.
Back in the day I discovered that there was an issue with some of my QQQQ data and it was because they marked the close at 4:15. I wouldn't be surprised if something similar was up with SPY and DIA.
And what does any of what you just said have to do with candlestick patterns? The issue there is that the indices which contain NYSE stocks (almost?) NEVER show gaps on the open b/c of the way the NYSE staggers the openings. That's all I ever said about using candlestick analysis -- the opens on $SPX and the Dow indices don't accurately show the action.
Nobody trades the $SPX unless they are placing buy and sell orders for 500 stocks at a time.
Retail people trade futures or ETFs. All of the tracking, trade-able issues, including futures, have similar errors from the index calculation, actually worse errors because of the fair value calculation and cost of carry that diminishes with time to expiry. So, just my opinion, we should chart them to trade them and not consider the index trade-able or expect it to show things that a stock would on trendline breaks.
Just expressing an opinion and not trying to start a flame. Dude, you "sounded" pissed, and that wasn't my intent. Sorry.
Good analysis, Mike. In my view, the bottom lines are that as long as NASDAQ remains above its MA50, die-hard bulls are not concerned; on the other hand, as long as NASDAQ fails to break and close above its Nov'06 high, die-hard bears believes that the risk is on the down side. I will basically wait for either of above scenarios happen before making any full-hearted commitment. You can see my weekly trading calls here:
flyingwabbit.blogspot.com
Best regards,
FW
Bill,
I wasn't pissed. All I'm trying to say is there's a whole lot of activity, be it retail or large professional funds driven off of the S&P 500 technicals -- moving average touches, breaks of support/resistance, etc. Maybe I'm working off of an erroneous assumption that $SPX is *the* chart that's driving everything.
Cool, glad you weren't POed.
Just my opinion/observation, but the things that get traded - ETFs, Futures - have their own supply/demand and their own movement, which demonstrably does NOT track the movement of the index. I agree that there is arbitrage that will keep them close! But, in the time frames where you and other day traders are trading them, and possibly even over days, there will be inaccuracies. Just my opinion - I would use the indices to keep tabs on "market" movement but would chart what I traded, i.e. use the chart of the Emini or SPY to trade the Emini or SPY (or QQQQ).
Now to your point, I'm sure that some players might tie the buying/selling of the underlying companies to what happens in the index, but I'm also sure that a lot of the big players probably look at individual stocks and sectors independant of the index, so a trendline break on $SPX might go unnoticed to them.
If you look at the market carpet over the past four days, you can see the rotation happening. It is possible that the trendline break is inconsequential to the players that caused it because they are rotating sectors.
I just think it doesn't trade like a stock because it never gets traded directly.
Mike
You are not the only one not finding good setups tight now. I was just reading The Big Picture and similar sentiment is expressed there. I also penned an article on my blog about how the sentiment indicators are sending "mixed messages" right now. I think we are short-term oversold, but this could get even worse if selling continues next week (or if it starts in techs). But even going into mid-January I think we are due for a pullback. If crude starts recovering I think everything will take off to the upside again. Watch crude, interest rates and dollar in coming days!