Wednesday, August 17, 2011

A Quick Note on the Markets

Above are three charts of the ETFs which track the QQQs, IWMs and SPYs, respectively. At the opening of trading today, all three hit resistance at the 10 day EMA. In addition, all three's A/D and CMF indicators shows an exodus from the securities. While the MACD is nearing a buying signal, it is still negative, meaning the buy signal would be weak.

After a severe sell-off, it's common for stocks to have a "dead-cat bounce," where the security will rally weakly before moving lower. Typically, the security hits resistance at an EMA or Fibonacci level. I'm not saying that's what we'll have here, although the indicators are lining up in that direction.

Ideally, we'd like to see the market hit resistance and then retest previous lows before moving higher. That would tell us that a majority of traders have established important trading levels where they will purchase a security. In contrast, a strong move below those levels (112 on the SPYs, 65 on the IWMs and 50 on the QQQs) would give us a strong sell signal. However, there is too much upward resistance to even think about going long at this point.