The Aftermath of Steep Broken Trends

534 views

The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday. 

 Both the leading Nasdaq Composite and Russell 2000 indices, housing plenty of institutionally-backed high growth issues, continue to operate beneath well-defined steep uptrends which had previously been broken.

On the weekly charts for both indices, note the struggle currently taking place between buyers and sellers to dictate the next move. The high stakes nature of the current setup has likely lent to the choppy, back-and-forth action we have seen in many trading sessions of late, namely the opening gaps higher faded throughout the day, or at least failing to energetically follow-through higher.

Breaks in abnormally-steep, unsustainable trends which last for years (which is what we saw from both the Nasdaq and Russell, highlighted by the light blue lines), still command your respect.

In other words, traders should not assume a good low has been put in with the recent market pullback and subsequent bounce attempts. For both the Nasdaq and Russell, a move below the 50-period weekly moving average (darker blue line on each chart), likely spells a deeper correction at hand, rendering recent buyers trapped and thus scrambling for the exits.

In searching for clues as to the odds of whether the leading indices break up or down from here, let us zoom in towards the daily timeframes. 

Both the Nasdaq and Russell now have clearly-declining 50-day moving averages above price. This circumstance means traders should view rallies with a skeptical eye, despite the many V-shaped rallies we saw to new highs in 2013. After all, the 50-day moving average is simp;y a composite of the prior fifty trading sessions. And when it is declining above price it indicates that the intermediate-term timeframe is cautious/bearish until proven bullish again (the still-rising and longer-term 200-day moving average [yellow line] implies a longer-term bull market intact, despite corrective activity). 

The Nasdaq also has been working through what can be seen as a bearish pennant pattern, denoted by the purple lines. In other words, further weakness should be taken very seriously as a distinct possibility out of this multi-week consolidation. 

At a minimum, the Russell is likely to offer choppy action until we see a break of its own potential bear pennant, purple lines here as well.

While the Dow Jones Industrial Average and S&P 500 indices remain resilient near recent highs…

Please click here to continue reading

5 Responses to “The Aftermath of Steep Broken Trends”

  1. Gary Kaultbaums Uneven Sideburns

    Chess – Just wanted to say how impressed I am with both the volume and quality of the work you put out. Its hard enough being a full time trader, but add to it the additional responsibilities of a high caliber blogger and its over the top. You educate in a way that doesn’t come off like many other bloggers: Those who insist on taking the ‘Im smart, you’re dumb’ approach. I’m really a huge fan and very impressed. Keep it up.

  2. Yes Chess, what Gary said.
    You have been so very consistent not over months but over the years. Well done and amazing.

  3. +1, nice work on market analysis with illustrated pictures, and a handle on preserving capital at all times. I’m looking forward, however, to the time when I read one of your posts and it says we are clearly in a bullish or bearish trend given recent action. The chop is getting old, summertime sadness.

Comments are closed.
Previous Posts by chessNwine

The Aftermath of Steep Broken Trends

534 views

The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday. 

 Both the leading Nasdaq Composite and Russell 2000 indices, housing plenty of institutionally-backed high growth issues, continue to operate beneath well-defined steep uptrends which had previously been broken.

On the weekly charts for both indices, note the struggle currently taking place between buyers and sellers to dictate the next move. The high stakes nature of the current setup has likely lent to the choppy, back-and-forth action we have seen in many trading sessions of late, namely the opening gaps higher faded throughout the day, or at least failing to energetically follow-through higher.

Breaks in abnormally-steep, unsustainable trends which last for years (which is what we saw from both the Nasdaq and Russell, highlighted by the light blue lines), still command your respect.

In other words, traders should not assume a good low has been put in with the recent market pullback and subsequent bounce attempts. For both the Nasdaq and Russell, a move below the 50-period weekly moving average (darker blue line on each chart), likely spells a deeper correction at hand, rendering recent buyers trapped and thus scrambling for the exits.

In searching for clues as to the odds of whether the leading indices break up or down from here, let us zoom in towards the daily timeframes. 

Both the Nasdaq and Russell now have clearly-declining 50-day moving averages above price. This circumstance means traders should view rallies with a skeptical eye, despite the many V-shaped rallies we saw to new highs in 2013. After all, the 50-day moving average is simp;y a composite of the prior fifty trading sessions. And when it is declining above price it indicates that the intermediate-term timeframe is cautious/bearish until proven bullish again (the still-rising and longer-term 200-day moving average [yellow line] implies a longer-term bull market intact, despite corrective activity). 

The Nasdaq also has been working through what can be seen as a bearish pennant pattern, denoted by the purple lines. In other words, further weakness should be taken very seriously as a distinct possibility out of this multi-week consolidation. 

At a minimum, the Russell is likely to offer choppy action until we see a break of its own potential bear pennant, purple lines here as well.

While the Dow Jones Industrial Average and S&P 500 indices remain resilient near recent highs…

Please click here to continue reading

5 Responses to “The Aftermath of Steep Broken Trends”

  1. Gary Kaultbaums Uneven Sideburns

    Chess – Just wanted to say how impressed I am with both the volume and quality of the work you put out. Its hard enough being a full time trader, but add to it the additional responsibilities of a high caliber blogger and its over the top. You educate in a way that doesn’t come off like many other bloggers: Those who insist on taking the ‘Im smart, you’re dumb’ approach. I’m really a huge fan and very impressed. Keep it up.

  2. Yes Chess, what Gary said.
    You have been so very consistent not over months but over the years. Well done and amazing.

  3. +1, nice work on market analysis with illustrated pictures, and a handle on preserving capital at all times. I’m looking forward, however, to the time when I read one of your posts and it says we are clearly in a bullish or bearish trend given recent action. The chop is getting old, summertime sadness.

Comments are closed.