Everybody is bullish on the stock market, but are the bulls that strong? An in-depth look with the help of oscillators say no. This is a very annoying market, with daily swings that have no logic whatsoever. This is the fourth false breakout in 2014. This fact rules out the option of getting into a short right now and riding it to 15000 or even 14000. What I am going to do is wait for a daily strong sell signal, like another bearish divergence and a false breakout.
Analyzing the chart, there is a clear uptrend going on, and after a crazy rally, the Dow retraces to the EMA Wave. But where is that crazy rally in 2014?? The price deviation from its EMA is very shallow. The MACD lines continue to be in a massive double bearish divergence, first a class A, then a class B. This is toppy behaviour. The MACD histogram had a very nice run in the beginning of 2013, and a smaller run at the end of 2013. Where is the power of bulls right now? There is no clear downtick to confirm the divergence, but by the time there will be one, it is going to be too late to jump in, as this is a weekly chart, and we are still in an uptrend. The point is we need to anticipate. Think about it ; in order for the Dow (and it's the same picture as in Germany, Spain, Australia, France) to clear this bearish divergence, it would have to rally to about 20000 ( this is just an aproximation, theres no way of telling). Now, how likely is the Dow to rally to 20000 till the end of the year or the start of 2015, compared to correcting to 14000 - 15000 in the next few months, and clearing up this ugly bearish divergence?
Now the Force Index. First the longer term FI, coloured in blue and circled in green. Look at that huge class B bearish divergence. Why would you buy this?? Yes sure, I may be wrong, and the Dow might rally 1000 points this week, but why would you buy this? The second FI, coloured in red, is used for entries and finding short term weakness or strength, that is how its creator, Dr. Elder uses it. The bearish divergence is going on for months, and Dr. Elder said once that what he really likes is 4 peaks on the 2 day FI, each one lower than the other with price standing higher at each peak. Here, the price is not standing higher, but we have 5 lower peaks on the FI. This is extremely bearish.
The daily chart stands at a buy zone, and on Friday the momentum from Thursday was lost. I don't want to enter right now, I want to go in a bit higher. I will wait for a serious signal, as I got whipsawed a few times by this false breakouts.
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andrew.berg
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what a false break out, keep doing the same
EliteTrader101
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Looking at the daily, its just testing the top edge of a value area and there's not enough liquidity built up for the big players to be involved. Vol. shows that big players bought because the next day was up on the high vol down bar. It is safer to go long the Dow to the double top and keep going long on the next pull back until we see a huge build up of shorts and keep holding the longs until a breakout to highs where all the Big Players are waiting to Short. That to me is the safer way to pick the top in this crazy uptrend. You need to see the big players involved and this is the way they play the game. They have to squeeze these shorts and turn them into buyers at the top! Just go back and see for yourself how each temporary top was made. It's usually a Crooked M pattern.
ZigaZaga
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Thank you - a very valuable insight into the market's psyche. is this where one would look at "on-balance volume"?
EliteTrader101
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sorry, I don't use that indicator. I use real volume.
ZigaZaga
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I do get confused with the Dow - there's an FX version my broker provides, then this SPDR and a DIA one... most don't show any kind of volume information at all. Is this FXCM they trade much in the US/globally -
on-balance volume is supposed to be a way to filter out smaller trades and only show large ones by big holders. I haven't been able to use it on the instruments I trade. I'm just gonna wait for a MacD confirmation on the hourly - seems to have worked before.
I'm using DIA and SPY for volume. I just use price action and volume at certain levels, looking for traps at highs or lows of day so i can get in with a very tight stop. I used to use all kinds of oscillators decades ago, but i now trade off a naked chart with better results.