The NASDAQ Composite has retreated to its 200-day moving average on the daily chart. But the Stochastics indicator on the weekly is more interesting. It has finally retreated to the lower area of the chart. The weekly Stochastics usually retreat to the lower range at least once a year. This retreat has been overdue.
A rebound of the Stochastics from the lower area of the chart typically coincides with a good time to buy either ETFs related to the index, or some of the top holdings of the index. This could be a good time to watch the charts of some of the major components of the index for good bullish trade entries.
But the rest of the market has to play along. The Russell 2000, the index of smaller cap stocks, is following the NASDAQ's lead. Will it hold at the 50-week (200-day) average and form a nice rebound in both the index and the weekly Stochastics?
The picture so far suggests the recent market weakness could be nearly over. A little more selling, a little consolidation, and then a ‘buy' signal on the weekly Stochastics would be just what the doctor ordered. (A ‘buy' signal on the Stochastics is described here)
But then there is the Dow Jones Industrial Average. The weekly Stochastics have so far refused to venture below the upper half of the chart for almost 18 months.
And if we look at the S&P 500, perhaps the best indicator of the overall market health, we see momentum has fallen off, and the weekly Stochastics may be forming another lower high.
These two charts suggest the current market weakness may be just the start of a more significant pullback.
So which will it be? Will the technology-oriented or small-cap indexes lead the way with a rebound, and the Dow and S&P will follow? Or are we in the early stages of getting our clocks cleaned? (Clean one's clock)
Sensationalist headlines on Marketwatch.com aside, no one really knows. But a prudent short-term trader will trim, hedge, or close open positions when there are conflicting setups like we currently have.
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, please click on the following link: www.markettamer.com/seasonal
Copyright (C) 2014 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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