Where to from here?

GMI4/6
GMI-23/9
T210851%

The QQQ (and the SPY and DIA) are following a pattern similar to the one formed in December and January. The market rises and then enters a downward sloping channel of consolidation. I have drawn in the channel lines in the daily chart of the QQQ below. There are three things I look for in this daily chart. First, I look for the QQQ to bounce back and forth between the channel lines until an up or down-side break-out. Second, I look at the Bollinger Bands to guide my interpretation. The QQQ often finds support at the lower daily 15.2 BB. And third, the stochastics (daily 10.4) provides further indication of a possible oversold bounce. I look at all 3 of these indicators to guide my trading. I sometimes   trade the 3x leveraged bullish ETF, TQQQ, to ride the bounce up. I reduce risk by determining in advance a price   which may signal that the bounce has   failed and where I intend to sell out my position for a small loss. I find it much safer to trade a bounce off of support in an up-trending index or stock rather than buying break-outs. This is one of the primary techniques I teach my students at the university.

QQQ04172015

So what does this chart tell me now?   (Click on chart to enlarge.) We are backing off of resistance at the top channel line. The decline has not yet reached oversold territory, however. The stochastics are at a relatively high 70 level and the QQQ remains well above the bottom BB and the channel line.   I am waiting for these indicators to suggest a bounce from oversold. The index does not have to be oversold to signal a turn, however. The last bounce in February occurred with the stochastics around 38  (a bullish divergence) and just above the lower BB. While a turn at oversold levels is less risky for me, a turn at stronger levels can also signal the start of a nice move up. While the market can do anything, I suspect this decline will take us to oversold levels. The Worden T2108, at 51, is still high. T2108 fell to around 40 at the time of   recent bounces.

The analysis above is very short term oriented.   The weekly modified GMMA chart shows the QQQ remains in an RWB longer term up-trend.

QQQGMMA04172015IBD calls the market up-trend under pressure. The GMI remains on a buy signal since January. However, both the QQQ and SPY have now closed below their critical 10 week averages. Caution is called for.

GMI04172015

 

 

 

 

Using the modified GMMA to dissect the DOW-30

GMI3/6
GMI-23/9
T210853%

With the GMI stuck at a middle 3 reading (see table below), I thought it might be useful to analyze the Dow-30 stocks according to the patterns I have been writing about that use a modified GMMA chart. Dow30GMMA024022015It is noteworthy that a little less than one half (14) of the Dow 30 stocks remain in a strong RWB up-trend.   Ten stocks are too close to call with their 6 red short term exponential averages overlapping with their 6 blue longer term averages such that there is no white space between the two sets of averages. Finally, six stocks are in solid BWR down-trends with all of their shorter term averages well below their longer term averages. I only want to own stocks showing RWB patterns because they are in strong up-trends. BWR stocks are for shorting, and I would never hold any of them long. The fact that about one third of the Dow 30 stocks are   in No-W patterns (no clear up or down-trends) could signify a market in transition. I provide an example of each pattern below.

RWB up-trend: UNH

UNHRWB04022015BWR down-trend: XOM

XOMBWR04022015

No-W, indeterminate trend: JNJ

JNJnoW04022015It is possible JNJ (and the other 9 N0-W stocks)   is in the process of transforming from a multi-year RWB up-trend to a BWR down-trend, like XOM did in 2014. Only time will tell…………

GMI04022015