Many traders look at indicators and try to develop trading strategies around tools like the
stochastics indicator or
MACD.
Sometimes, it is a good idea to just see what the indicators are saying
without even considering what the price looks like. This idea is shown
in the chart below:
Four diverse indicators are shown, and it is difficult to make a
bullish case when looking at them:
1. The
stochastics is used to find
market extremes, and the current signal is
bearish with no sign of a buy signal in sight.
2. MACD measures the momentum of the current price trend, which is now accelerating to the downside.
3. Money flow
index reformats
volume
data and shows whether there is more volume on up moves or down moves.
The current reading indicates traders are selling with more conviction
than they are buying.
4.
Relative strength
(RS) is used to find the leading trade candidates and many short-term
traders buy only when RS is greater than 70, a long way from where the
indicator sits now.
We trade price, not indicators, so in the next chart we have only the price data for
SPDR Dow Jones Industrial Average (NYSE:
DIA), the same
ETF associated with the indicators shown above.
The
price pattern for DIA shows that the next 500-point move on the Dow is
more likely to be down than up. DIA came close to meeting its upside
target based on the pattern that formed as prices dipped earlier this
year, highlighted as (1) in the chart above. DIA then formed a small
rounding top pattern and broke an upward sloping trendline as that
pattern was completed, shown as (2), pointing to an initial downside
target of about $125.50, highlighted as (3).
Additional downside
targets indicate that the price could fall significantly below $125 with
support at $120 also marking the level where a large top pattern would
be completed. If DIA broke below $120, then the next
price target
would be $104. That would push the Dow to its first 20% decline since
2009, and a 20% drop after a four-year uptrend should not be considered
unusual. The average
bull market (periods between 20% dips) lasts 45 months. We are now 44 months into the current
bull.
With
the Dow expected to fall to at least 12,500 before moving higher,
traders should maintain a short bias in the current market. Consider
outright short positions or at least avoid adding new money to stocks
for now.
With
gold and silver moving higher this week as stocks were trounced, today,
Egon von Greyerz lets King World News readers know what to expect for
the rest of this year as well as for 2013. Here is what Greyerz had
this to say: “We are entering one of the most worrying times in
history, maybe even for centuries or even for a millennia. I think we
are going to see a turn in the world economic situation that is going to
be long and extremely difficult.”
Jim
welcomes famed technician Stan Weinstein back to the program. Stan
believes U.S. markets have just entered a bear market and says long,
intermediate, and short-term trends have turned negative. Also in this
segment, Ryan Puplava has the Market Wrap-up, Erik Townsend discusses
the commodities markets, and Jim Puplava gives the Fixed Income Report.
Click Here to Listen to the Audio
The global economy took another turn for the worse as Japan plunged into recession following two consecutive quarters of growth.