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Purely Technicals' Blog

Stocks At A Cusp

Purely Technical Weekly Newsletter (December 11, 2006) - Featured Article:

The following are a couple of featured articles from this week's Purely Technical. You can receive the full newsletter for FREE, by visiting our home page - www.themarketmessenger.com - and filling in the "Join Our Newsletter" form.

Here are the featured articles...

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Market Round-up

The stock market has held up rather well over the past 6 trading sessions. Last week, we’d highlighted negative divergences on a number of leading indices. Those divergences haven’t gone anywhere, despite the small move higher, and might yet come home to roost. We’ll have to wait and see…

The precious metals have made a minor correction, but looking at the charts today, not much seems to have changed outside that arena. So, we’ll keep our market analysis short and to the point, instead of trying to paint the picture of an invisible landscape.

 

Stocks Continue to Consolidate Near the Highs

Let’s get right into the charts…

 

The S&P 500 continues to trade in a bullish channel that has guided prices since the beginning of the rally 5 months ago.

Price made a new high (by a few points) and traded sideways for the rest of the week (Can someone say “booooring”!?). The bulls certainly will not be complaining about this action because the stock market, in general, is consolidating at the highs.

Looking at the general landscape, however, it is slim pickings when it comes to finding trading opportunities in individual stocks. A breakout upwards that initiates another short-covering rally, or a breakout downwards that triggers a few sell signals is needed in order to break this stalemate. Else, we’re going to continue trading sideways into the holiday season.

Getting back to the chart of the S&P 500, MACD continues to show a negative divergence (now a triple divergence), and RSI is pointing upwards after finding support at its centerline once again. Volume is average.

Price is trading just a couple of points under a flat upper Bollinger Band, and will have to gather considerable strength to push the Bands apart, if the rally is to continue in the short-run. Failing this, it’s going to soon have to contend with a rising 20-day Moving Average and the lower line of the rising price channel.

… a complete stalemate. Fingers crossed that something gives, soon!

 

 

The INDU has been finding resistance on the minor trend level, at 12360. It has nudged up against this level 4-5 times over as many weeks, but each time it has tried to get cozy with that level it has been pushed away.

The good news is that the tenterhooks are about to be broken. The rising intermediate trendline is currently at 12300. Price is being squeezed in-between the rising trendline and resistance; a breakout in one direction or the other has to be imminent. (Maybe time for a very short-term options volatility trade on the DIA…)

Looking at the momentum indicators on INDU, RSI has found support at its centerline and is meandering upwards, but MACD continues to show a glaring negative divergence.

On to the Nasdaq Composite…

 

 

In last week’s issue of Purely Technical, we’d drawn a channel on COMP. This past Thursday, the index closed below that channel’s lower line. Since then – on Friday and Monday – the index has traded slightly higher, but has closed under the lower channel line on each occasion. It is hard to be sure about this channel’s legitimacy at the moment, to be quite honest, especially when one sees the potential bull flag that is on the chart, and given the strength of the intermediate trend.

That aside, this index has not made a new high over a few weeks now, unlike many other major indices, and as of today it is even showing a confirmed negative divergence with MACD. RSI is not trading very far away from its centerline and a negative centerline crossover would be a given, if the index were to decline even slightly from current levels.

Furthermore, the Bollinger Bands (see Bollinger Band Width indicator on top of chart) are getting really tight. This is a sign that volatility has contracted to an extreme point, and mean reversion – an increase in volatility – might be on the cards.

On to the Dow Transports…

We’re not sure what the Dow Theorists think of this (we’re not so certain about the relevance of Dow Theory in this day and age, but some other notable technicians swear by it), but the Transports have not made a cyclical high for months now.

In the middle of November, the index bumped up against the falling trendline shown on the chart, and has declined nearly 5% since then. What’s more is that RSI is showing a negative centerline crossover and MACD, which has been showing a negative divergence for a couple of weeks now, is threatening a negative centerline crossover, as well.

 

 

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Snapshot of the latest issue of Purely Technical:

   

_____________________________________________________

Articles inside in this issue:

§      Market Round-up

§      Stocks Continue to Consolidate Near the Highs

§      Gold and Silver Undergo Minor Correction

§      Options Theory – Volatility: Basic Concepts 

§      Options Theory – Introduction to Volatility Trading

______________________________________________________

You can join our mailing list to receive the latest issue of Purely Technical each week, by visiting our homepage at www.themarketmessenger.com and filling in the "Join Our Newsletter" form.

We look forward to being your best source for technical market analysis, stock picks, options picks and education in technical analysis and trading.

______________________________________________

 

Have a Great Trading Week!

Asher Pinto

TheMarketMessenger.com

 

Disclaimer:

This newsletter has been provided for your informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any security or financial product that may be referenced herein. Further, the information contained in this informational newsletter does not constitute investment advice or investment advisory services. All securities trading, whether in stocks, options, or other investment vehicles, is speculative in nature and involves substantial risk of loss. We shall not be held responsible for any losses incurred as a result of the use of any information provided herein. You are strongly encouraged to seek personal advice from your professional investment advisor and to make independent investigations before acting on any information that we publish.
Published Wednesday, December 13, 2006 2:14 PM by Purely Technical
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