Technical Analysis for the Day/Swing Trader ~ The Risk Averse Alert

Saturday, July 16, 2011

Technical Analysis for the Day/Swing Trader

As I indicated yesterday, Friday's trade could have been considerably more positive, as the technical setup going into the day rather supported a constructive outlook. However, despite Friday's disappointment (with the market up only marginally), no sudden, unexpected surprise developed, either.

Keep this in mind as you reach the conclusion of this report, because more often than not, the reward accruing from my brand of technical analysis is greater clarity in one's outlook. You might have missed my announcement a couple weeks ago, but if you are a day/swing trader, now you can tap into my intra-day insights, and supplement your trade-related decision making with timely perspective elevating your odds of success.

SPX 5-min

Following Thursday's close there were positive relative strength divergences (red line), as well as healthy indications of fear (circled in green), such as typically register during the initial phase of an advance (this via relative strength remaining on the sell-side of its range, below 50). Thus, Thursday's mid-day lift off bottom was thought possibly beginning a solid move higher.

Now, a further advance still could come to pass, but there's reason to doubt the likelihood. To wit, modest price appreciation late in the day Friday left SPX contained in its downtrend, while RSI at 5-minute intervals peaked at the upper end of its range over the past week. So, despite being poised for a solid breakout following Thursday's close, the jury remains out on whether a decided turn higher still might materialize.

Evidence casting doubt on the prospect is uncovered at longer time intervals...

SPX 15-min

At 15-minute intervals we see the same positive RSI divergence (red line) right up to Friday's late-day lift higher. However, with SPX relative strength not yet decidedly established on the buy-side yet (above 50), there's a case for doubting the staying power of Friday's positive finish.

Those counter-trend rally contrasts marked in black — each in their own right a positive indicating improving underlying strength — have yet to confirm a buy-side turn in relative strength as a result of last week's trading. Thus, further selling, how ever muted it might prove to be, could materialize and sink SPX below its low on Thursday.

Obviously, Monday's open could deliver the positive turn in relative strength needed to put a sustainable floor under the market. Yet here, too, there's reason to doubt the likelihood...

SPX 1-hr

At 1-hour intervals relative strength remains decidedly locked on the sell-side of its range. There is every reason to expect further selling ahead.

About a month ago I began logging intra-day observations on both SPX and NDX with an eye toward creating a fee-based service for short-term traders. So far, about a dozen observations per trading day have been published, and these along lines presented here today.

Before launching this service, I am seeking feedback from those who trade stocks/options/ETFs using some proprietary system, and who desire more consistent success. With my intra-day observations supplementing your decision making, the profitability you seek finally could be yours to enjoy.

So, if you're curious, then write me (subject: SPX v NDX). I will point you to my intra-day blog (it functions like Twitter in that updates automatically appear without you needing to reload the page). There's no charge, so you have nothing to lose.

Right now, I'm just looking for constructive feedback. No doubt most readers here, like me, probably are not short-term traders. But if you are, then write me. My email address appears in the blog header above.

Let's see if by incorporating my succinct, short-term-oriented, technical observations into your current trading methodology a barrier to your more consistent and profitable success might be breached.

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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.

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