June 19, 2011
Weekly Market Outlook
By Keith Schneider
The markets teetered and then stabiized as Germany finally coughed up a few bucks (with a little help from France) to keep Greec part of the EU. Another too big to fail scenario as many European and US banks are holding on to piles of Greek debt. Greeks themselves are heeding their old adage and not chomping at the bit to accept such "generosity" as the austerity demanded by the Germans might crimp their style. We have not heard the end of this yet! Are we next?
For specifics on our current trading and technical outlook read on.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQQ (NASDQ 100)Indexes
| All the key Indexes, with the exception of the QQQ (leading NASDQ), remained in their warning phases with the 50 day moving averages accelerating their slope to the downside. However DIA and IWM had a slightly positive week. And that's the good news. The QQQs confirmed a move to a distribution phase with two consecutive closes beneath the 200 day MA. This index is now down marginally for the year. Right now, from looking at the overall picture, we see a potential short rally but it should meet heavy resistance and make another test of the lows at a minimum.
QQQ-Note three heavy distribution days and closed beneath key 200 MA -heavy selling, and thru March Lows DIA- Dow Jones Outperforming other US Stock Indexes but this is an index with only thirty stocks. DIA is holding well above the March Lows
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Market Internals - Some pretty heaving selling pressure across these indicators although a few are indicating a potential short term rally
VIX (sentiment): This sentiment indicator has now fired off a sell signal with a close above the 50 and 200 day MA. Interesting to see that the March panic resulted in a bigger spike at the same price levels suggesting that there is more fear to come after a short pause much like last winter.
Accumulation/Distribution Volume: The selloff continues to accelerate the bearish reading with most indexes having 4-5 distribution days. QQQs picked up three alone this week.
Up/Down Volume: Our short term breath indicator reached oversold levels on this week's test of the lows.
McClellan Oscillator: This breath indicator seems to be holding here a positive=bullish
Sectors
The Adaptive Moving Average Raises Questions At Webinar
This week we held a free webinar on swing trading in the current warning phase market conditions.
Did you see it?
We had a great feedback and participation in the webinar as it discussed how we're trading both long and short in this weak market. If you missed it you can get access to the recording until Monday (we extended the deadline for this article).
One of the key concepts for navigating difficult market conditions is the use of a fast moving average. One of our favorite moving averages is the Adaptive Moving Average. For many traders this is a new type of moving average so it led to a slew of questions. The most popular questions are answered below.
What is an Adaptive Moving Average?
An Adaptive Moving Average has a formula that changes in sensitivity based on the volatility of the direction of price movement. It is basically an exponential moving average that increases the number of bars used to calculate the average as volatility increases and decreases the number of bars uses as the price action stabilizes. It also has a smoothing factor based on the tendency of the trend. Needless to say, the formula is too complex to include here, and it would probably not make sense to most traders.
But in simple terms, it's a sensitive moving average. We use the default settings.
What should I use if I don't have the Adaptive on my platform?
As Mish covered in the webinar, the exact moving average calculation is not as important as looking at the relationship between price a few moving averages. So if you don't have the Adaptive calculation in your platform, you can apply everything Mish taught in the webinar to a simple 10-day or exponential 10-day moving average.
If you attended the webinar, we hope you learned quite a bit about how to navigate markets in transition. If you missed it you can find the recording here:
Click here to watch Mish's free Webinar.
Right now Mish is offering a very unusual opportunity to get access to here service and more training on a free trial basis. We've never created an offer like this before. It expires Monday at midnight (we've extended it for this newsletter!)
Get the special free trial and training here.
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