The markets pulled back a bit yesterday. It certainly is not surprising, after four solid up-days since the reversal last week. And so far, the volume of the
past two days has been at or below average. Technically, there is no reason to suspect anything more than a brief pause before a renewed up-move. Even the MACD indicator has just crossed over, indicating a buy signal. The NASDAQ Composite, the Dow Jones Industrial Average, and the Russell 2000 all look similar to the S&P 500:
Normally, waiting for a minor pullback, and then taking selective, reasonable, conservative long positions would be in order as soon as the pullback seems to be reversing. But these are not normal times.
Some reckless comments are starting to come out referring to the ‘fiscal cliff' negotiations. This is unsettling to the markets. The risk is starting to rise
that the year-end rally that was starting to take shape may turn on a dime and strong selling may take hold, especially by individual investors looking to lock in capital gains at the current lower rate.
What I am looking for right now are patterns of lower highs/lower lows and downside volume. For example, MHK has been a strong stock, showing regular high-volume days when MHK is starting a new move upwards (the yellow circles below). These regular patterns are the marks of institutional accumulation.
MHK set an almost 5-year high in early November, on strong volume. It has pulled back to its 50-day MA, with a few above-average days of volume. This is not surprising, with the overall market in a pullback.
What is waving a caution flag is MHK’s MACD indicator showed a divergence with the setting of the November high – MACD set a lower high as MHK set a higher high. Subsequently, the most recent high a few days ago was lower. Volume up to that pivot point was significantly below average, a contrast to most previous up-moves.
MHK may be an exception. But, if you start to see similar patterns in many big-name stocks, and the major indexes/ETFs, then consider it may be an early-warning sign that institutions are starting to unload positions. They are not going to email you advance notice. You have to think like a sniper or scout sent ahead of the lines – you need to look for anything odd, any bush moving, anything out of place.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, click here: www.markettamer.com/seasonal-forecaster
By Gregg Harris, MarketTamer Chief Technical Strategist
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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