Thursday, September 23, 2010

Technical Picture - Diverging Markets

Futures sold off overnight on disappointing data out of Europe. Initial claims weren't good enough to turn things around so we gapped down on the open. Tech buyers immediately stepped in, but the broader markets needed a bit of a nudge in the form of better than expected existing home sales and leading indicators.

As you can see from the 15 minute charts of the Q's and SPY below, we have diverging markets. Tech is still holding support above the 5 day MA and the SPY barely tasted it on the gap fill. The Q's took out the PDH and tested Tuesday's post FOMC highs, but the SPY just managed to fill the gap, edging into the lower range of yesterday's action.

The two markets don't have to trade in lock step, but at some point, they have to confirm each other. This is an intraday tell and non confirmation leads to reversals in the price action. So, it was no surprise when the markets swooned into the close.

One of the reasons we've diverged so much is quarter-end window dressing. Institutions are busy loading up on sexy tech names like BIDU, AMZN and AAPL to make it look like they got it right, and at the same time, they're unloading the weaker sector names like GS.

After three consecutive lower closes, I would expect some stabilization in the S&P. Hopefully, we can manage to hold the 200 SMA on a closing basis.

GS has broken through several support areas and we have two bearish gaps to deal with. If it can't stabilize here, watch out below.

Trade of the day - AAPL - Break of ORH after NRIB. Place fibs over previous day's range to set Fib. targets. AAPL is trading blue sky (all time highs) so it can run. When the Q's tested Tuesday's high, it was time to fold.

GOOG is flagging nicely.


Andy said...

What timeframe do you trade on the most Jamie?

I find that the 15 min timeframe is best for me.

Also, I see you use 1 min and 5 min also, do you happen to use the 10 and the 30 as often?

Jamie said...

Hey Andy,

Agree, 15 min. is best to capture the big picture and spot the narrow range consolidation points.

I also like to confirm on the 5 and 1 minute charts. I don't use the 10 and 30.

Ashish said...

Hi Jamie,

There is a lot of talk in the media about how the low summer trading volume is likely to persist into the future. Have you noticed any adverse impact on your trading due to this?

I am just wondering once the sexy tech rally is over, where it leaves us.

Thanks in advance,

Jamie said...

Hi Ashish,

Yes, during August, the low volume was frustrating on certain days. The low volume is probably an adverse effect of the May flash crash. The data show that mutual funds cash inflows have been negative all summer. Retail investors tend to pile in as prices approach market tops.

Hopefully, the COMP will take out April highs and run further so that we can finally put an end to the secular bear market that's been in effect 10 years (since tech bubble burst), and move into a bona fide bull market phase.