Internal Medicine
While you are reading this, I'll be somewhere over the Pacific Ocean on my way to Singapore. I'm excited to be teaching there again and will also be speaking on CNBC Asia's Cash Flow on Tuesday the 22nd as well as at the Invest Fair 08 in August. I'd love to see you if you are in the area. Of course if you can't make it to Singapore, there's probably an Online Trading Academy center near you that has great courses to offer.
When I teach a class, I always emphasize what is most important to predicting future possible price movement. Those of you who have been through Online Trading Academy's courses will recognize that the most important thing to look at is price. The best clue as to where price is headed is on price itself. However, there is something else that we need to consider as well…That's right, volume!
In order for price to continue a trend, it must have market participants pushing the price in that direction. I was watching the market yesterday morning and a wild bounce by the S & P 500 at the 1200 level, (remember I live in California so my charts are in PST).
I was also a guest on the Vince Rowe radio program at the time of this morning rally. I made a bold statement and declared to the listeners, "This rally will not last to the end of the day. It is occurring on light upside volume and cannot sustain itself. We will see a pullback by the end of the day."
Of course everyone wanted to know what magic I was using to determine this. There is no magic sauce, no secret potion. I simply look at the market internals. Ignoring the market internals is like ignoring what goes on inside your own body. Sure you may look fine on the outside, but you could collapse from a heart attack if you don't monitor your blood pressure. The markets are the same. If a trend is to continue, it should be supported internally by higher volume and a larger number of stocks moving in the same direction.
I use the Market Internals under Market Snapshot on the free portion of Briefing.com. Looking below, we can see that as the market was rallying on light up volume on both indexes and with less stocks participating. While the buyers did come back strong in the afternoon, it was only on a few stocks and couldn't keep all the indexes from falling from the highs of the day.
We see that the broad market did fail as indicated by the S & P 500 chart and the fact we closed below 11,000 on the Dow.
You may say, but the Nasdaq wasn't negative. You're right, it did finish slightly positive. Notice the difference in the market internals in the afternoon between the NYSE and the Nasdaq. The Nasdaq had more up volume in the afternoon. It did show strength.
Don't get too excited about tech yet. When the indexes diverge, the short term move may follow the Nasdaq, but the long term trends are with the Dow and S & P 500. And one more thought before I turn over and sleep off the 20 hour flight. Yes oil did pull back a bit today, but the trend is still intact. Anyone want to buy my Gas Guzzler, er I mean SUV? Sigh…
Until next time, may your trades be green and your losses small!
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A member of the Market Technicians Association, the Chartered Financial Analyst Institute, and now holding the Chartered Market Technician Designation, Brandon has appeared as a guest on CNBC Asia's Cash Flow and conducted special seminars for CNBC staff on technical analysis. He has published articles in The Trader's Journal Magazine and was interviewed in Share Investor Magazine. Brandon was also an industry expert speaker at the Asia Traders and Investors Conference 2008. As a former stockbroker, brokerage trader, and hedge fund trader, Brandon brings various market views and insight to his trading classes and lectures. A wealth of knowledge, he has held NASD securities series 7 and 63 licenses. An Online Trading Academy graduate himself in 1998, Brandon has been trading equities, options, forex, and futures in his own account since. 