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Day Trading Course, Despite recent gains, S&P still stuck in bear market?

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Day Trading Course teaches support and resistance necessary to navigate the markets.  Learn how to trade.

This is an article I read this weekend that I enjoyed, and though you might too.  It is exactly what I am seeing so I have not changed it at all.  Enjoy….

Any talk about a continuous bear market is about as popular as hemorrhoids. In fact, suggesting the presence of a bear market seems almost as socially unacceptable as talking about hemorrhoids.

But just because it’s hidden behind a veil of silence doesn’t mean it doesn’t exist. In fact, the less Wall Street talks about a bear market, the more likely there are to be falling prices. Just think of April 2011 (shortly before the summer meltdown) or April 2010 (shortly before the ‘Flash Crash’).

Unfortunately, sentiment is no longer fail proof (we’ll discuss why in a moment). The absence of any fear in December 2010 for example had no immediate consequences.

Fortunately, there are other measures and indicators to gauge whether this is a new bull market or a giant bear market rally. Here are some:

Before we talk about alternate measures of strength and weakness, supply and demand, it’s important to establish that price is the only measure that counts. But because price is often deceptive it tricks investors to move in precisely the wrong direction at the worst of time. The more you know, the more likely you are to call a ‘price bluff.’

Day Trading Course teaches volume and how to read it to see the direction of the markets.

Trading Volume

Trading volume measures the enthusiasm of buyers and sellers and is a totally independent variable from price.

The first chart below illustrates NYSE trading volume. The gray bars reflect daily volume. I’ve added a 50-day SMA to smooth out the daily peaks and valleys and allow for an easier volume trend analysis. The 50-day SMA shows that volume peaked in August 2007 and has since declined.

Obviously, the larger-degree trend for volume has been down. Particularly noteworthy is the drop in trading volume since the March 2009 low (black box). Various stock indexes like the Dow Jones (DJI: ^DJI – News), S&P (SNP: ^GSPC – News), Nasdaq (Nasdaq: ^IXIC – News), and Russell 2000 (Chicago Options: ^RUT) are up more than 100% since March 2009. Trading volume, however, is down in excess of 40% over the same period of time. What does that mean?

In his book Technical Analysis Explained, Martin J. Pring explains the significance of this: ‘Rising prices and falling volume are abnormal and indicate a weak and suspect rally. This type of activity is also associated with a primary bear market environment.’

Ouch, the long-term picture doesn’t look good. What if we zoom in to the short to mid-term time frame? The second chart plots the S&P 500 (weekly bars) against a 5-day SMA of trading volume. We see that since the 2007 market top, stocks have rallied on extremely low volume (red arrows). Periods of declines, on the other hand, were accompanied by massive trading activity. Technical analysis 101 says that’s bearish.

Volume Abnormalities Explained

Lowry’s has been monitoring buying and selling pressure for over 70 years and notes that contracting supply rather than expanding demand fueled the rally from the October low. The absence of demand rarely bodes well from prices (that universal law applies to baseball cards on eBay as well as German luxury cars and yes, stocks).

Demand would be dismal (and prices much lower) if the government (domestically and abroad) didn’t artificially prop up prices. QE2 in 2010/11 in the U.S. and about 1 trillion euro worth of long-term refinancing operations by the European Central Bank, have force-fed money into the market. Low trading volume is a dream for central bankers, as a little bit of artificial demand in a small market creates a bigger

splash than in a highly traded market.

Practical Value of Volume, Breadth and Momentum Data

Volume, breadth, and momentum indicators help evaluate price action. Think of them as an x-ray image that reveals developments hidden from the naked eye.

Slowing momentum or weakening breadth, are often precursors of a market top. If you like charting stuff, take a moment to chart the percentage of stocks above their 10, 20 or 50-day SMA and you’ll see that more stocks are falling below short-term SMA’s, even as the prices of broad indexes move up.

Fewer stocks above their SMA, means that rising prices are driven by a small number of stocks (can you say Apple?). A tell tale sign of a weakening up trend. The McClellan Oscillator uses a formula to calculate moving averages of advancing, verses declining issues.

The Relative Strength Index (RSI) measures momentum of stocks. The RSI provides some valuable clues, especially since we are in a liquidity-driven momentum market.

In August 2011, we predicted new lows based on a typical divergence between price and RSI seen at major market bottoms.

This expected RSI divergence was one of the reasons the September 23, 2011 we expected that: ‘A bottom at 1,088 should spur a multi-month rally’ and explained that: ‘From its May high at 1,370 to its eventual low, the S&P will likely have lost about 300 points (22%). This kind of move validates a counter trend rally. The plan is to square short positions and buy long positions around 1,088. The rally, once underway, will probably re-inspire a certain degree of confidence into the market before it runs out of steam.’

Divergences Raise Red Flags

We currently see bearish divergences between the McClellan Oscillator and prices, and RSI and prices. While the S&P has recorded new highs, the McClellan Oscillator and RSI have not.

This doesn’t mean that prices can’t go any higher, but it cautions that either a push to the next resistance or a drop below important support could result in a sizeable correction. Some say corrections are healthy, but I say that corrections in such an overextended market can easily turn into some sort of meltdown. So, there’s no reason to hold stocks for better or for worse.

If resistance is reached or support is broken, it’s prudent to scale down long positions and perhaps add short positions.

In summary, technical indicators (and support/resistance levels confirm this view) point towards a rally that’s running out of steam. Long-term indicators (one of which is trading volume) suggest we are still within a bear market.

The only silver lining is provided by central banks force feeding banks and financial institutions (NYSEArca: XLF – News), and a spike in seasonal strength.

Day trading course will be in your area soon, join us for Day trading education in Calgary Alberta on Feb 25-27.  Contact us for more details and to register.

The S&P500 emini futures is one of the largest professionally day traded markets in the world. Our Day trading course focuses on training you on how to see price and direction in the marketplace and how to leverage your strengths to take a profit out of the market.

Disclaimer: day trading is high risk, do your own work : The efficacy of both technical analysis and fundamental analysis is disputed by efficient market hypothesis which states that stock market prices are essentially unpredictable. Be responsible for your trades, do your own work and never rely on others. When searching for a Day trading course, be sure you understand the risks involved in trading.

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Day Trading Course, Weekly Trading Report.

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Day Trading Course, weekly trading report

Riskier assets were able to gain traction later in the week, as better than expected economic data, trumped the ongoing feet dragging surrounding the second bail out payment for Greece. The US markets continued to decouple from Europe, as better than expected employment, housing and manufacturing data, were released late in the week. The bank of Japan also surprised the markets with an expansion of their asset purchase program.

Day Trading Course teaches how to avoid the 10 mistakes that 95% of traders make to cost them big $$.

The yen was the weakest of the major currencies during the week, following the BOJ’s unexpected 10 trillion dollar extension of its Japanese government asset purchase program. The Yen weakened approximately 2% vs. the US dollar. The weekly Ministry of Finance data shows that Japanese investors are buying an average of $7.5 billion dollars of foreign stocks and bonds per week this year, which is a large increase over last year’s purchases. At the same time, foreign investors have slowed their purchases of Japanese bonds and stocks.

In the US, better than expected Jobless Claims continued to propel the US equity markets. Jobless claims dropped by 13,000 to 348,000 according to the Labor Department. Analysts surveyed had expected claims to climb by 7,000 to 365,000. The decline below 350,000 is in line with an unemployment rate of approximately 6%, compared to the current rate which is near 8.3%. The better jobs picture is increasing investor sentiment and consumer confidence.

Day Trading Course, teaches you how to take the entry with the smallest risk, then maximize returns.

In addition to the solid employment news, US housing numbers were also better than expected. Housing Starts last month increased 1.5% in December, according to the Commerce Department. The results were better than forecast. Economists surveyed had expected housing starts would rise by 3.0 % to a rate of 677,000. Building permits, which are a gauge of future starts, rose by 0.7% in January month over month to an annual rate of 676,000.

Yen Weakens on New BOJ Policy

The USD/JPY surged during the week as the Bank of Japan surprised investors by increasing their bond purchase program.  The USD/JPY broke through resistance levels near 78.40, pushing higher during the balance of the week, and closing nearly 2% higher above 79.40.

Oil Prices Test Resistance

Crude oil price rose during the week, testing the $103 per barrel level, as a stronger than expected draw in weekly inventories drove prices higher. The potential for an embargo on Iranian oil has buoyed prices during the past few months, ahead of the US driving season. Oil climbed nearly 3% during the week, and a close above $103.70, will target resistance near $105.

Day trading course will be in your area soon, join us for Day trading education in Calgary Alberta on Feb 25-27.  Contact us for more details and to register.

The S&P500 emini futures is one of the largest professionally day traded markets in the world. Our Day trading course focuses on training you on how to see price and direction in the marketplace and how to leverage your strengths to take a profit out of the market.

Disclaimer: day trading is high risk, do your own work : The efficacy of both technical analysis and fundamental analysis is disputed by efficient market hypothesis which states that stock market prices are essentially unpredictable. Be responsible for your trades, do your own work and never rely on others. When searching for a Day trading course, be sure you understand the risks involved in trading.

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Day Trading Course, S&P 500 retraces after 1070 double bottom

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Last week we saw the S&P test into the 1070 area of support before ripping back up over 40 points to close in positive territory for the day.  Then over the last few trading days, we have seen the rally continue.  Now, this rally is moving into the resistance as it approaches into the 1190 area.  From this area we will be looking to see if we will get a signal to short this for a retracement on the downside.  Likely into the 1150.00 area, then if the buyers step back into play we could see this move into the 1224.00 area and then possibly on to the 1250.00 area.  A weekly cart shows that things could rally as far as 1300.00 if the buyers stay motivated into the long term over the next few months.

Europe keeps pledging to fix this Greek debt thing and it actually seems to keep proping things up somehow.  Well for one, Good Luck, and I’m pretty sure that when you continue to dig in a hole, it just getts bigger.  But, somehow the banks don’t think so?  oh, well.  Let’s just focus on the trade and let it come and pay us.  This really is a wonderful market to make money in when you can see direction!

I let the trades come to me, I see price and direction.  Trade what you see, I’ll see you at the starting line!

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