Here’s the Next Short-Term Edge…

  • February 6, 2006
  • Rob Hanna

The
market put in a mixed performance today on weak volume.  The
intermediate-term technical picture is becoming more and more dicey.  The Dow,
S&P 500, and Nasdaq are all trading below their 50-day moving averages.  Breadth
was positive today, but the chart below shows that is has been steadily
declining since peaking on January 9th.  The red line plots each
day’s NYSE Advancers/(Advancers+Decliners).  The blue line is a 10-day
exponential moving average of the red line.

 



 

Friday saw the 10-day
exponential moving average hit a recent low.  This chart illustrates the fact
that less and less stocks are moving higher.  Internals are starting to
deteriorate.

 

In going through my charts over
the weekend I found a remarkably small number of new stocks near completion of
basing formations.  This can be an indication that bounces will continue to be
weak.

 

Short-term, the market is a bit
oversold.  It would be prudent to wait for a bounce before aggressively
shorting.  If you’re looking to play the bounce and start scaling into some long
positions, QQQQ is fairly extended and could bounce nicely should the market
begin to rebound.  Start small, though.  Although somewhat extended, a bit more
selling is needed before I would anticipate seeing a truly sizable short-term
edge.

 

Bottom line is the market
remains stuck in a range.  Support lies at 1259 (and then 1245) for the S&P 500,
and 2241 (and then 2190) for the Nasdaq.  Breaks of these levels on volume would
indicate an intermediate-term decline may be in the works.  Short-term, we’re a
bit oversold.  No huge advantage either way right now.  I still suggest trading
with a neutral bias until a significant edge appears.

 

Best of luck with your trading,

 

Rob



RobHanna@Comcast.net

For those who may be
looking to expand their knowledge beyond just market timing, my

Hanna ETF Money Flow System utilizes the VIX in
generating trading signals for spread trades.

Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.

 

 

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