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Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.
Technical Talk: October 11, 2010
Current Strategy:
From a technical perspective, stocks are clearly in an uptrend at the present time. However, the market is also overbought and bumping its head into serious resistance - especially on the DJIA, where the media's much-hyped 11K level could present a problem. We should also point out the potential double-top forming on the venerable DJIA. If you haven't seen this, do yourself a favor and take a peek at a weekly, closing basis chart of the Dow - see what I mean?
We'd be Short-term Buyers At: A Pullback to test 1150-1155 on S&P
We'd be Short-term Sellers At: A close below 1149
Trend and Momentum Indicators:
Short-Term Trend: Not much new to report here... The short-term trend remains moderately positive. However, the overbought condition means risk is rising.
Intermediate-Term Trend: Although the Intermediate-term trend remains up, a meaningful pullback wouldn't be surprising if something disappointing were to come out of the woodwork.
Market Internals: Our TBC models are both positive this morning, which tells us the trend is up and "in gear" at this point.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: While our momentum models are in decent shape, we are concerned about some divergences cropping up. Volume has been light and there have been a fair number of non-confirmations seen.
Support/Resistance Zones for S&P 500:
- Current Support: 1150ish
- Current Resistance: 1175-1185
Early Warning Indicators:
Overbought/Oversold Condition: Stocks are now overbought from both the short-term and intermediate-term perspective. And while we can easily say this is currently a "good" overbought condition (due to the length of time it has been in place and the strength of the recent rally), we do have to recognize that a pullback in the near-term is likely.
Investor Sentiment: Our sentiment indicators continue to be conflicted. As such, we'll call it "neutral to moderately negative" today.
Chart Watch:
Below are snapshots of the two main charts we watch closely each day from a technical perspective. The indicators we display on the charts below include: 50 day simple ma (purple), 25 day weighted ma (cyan), 10 day exponential ma (thick orange), 200 day simple ma (thin orange), and stochastic %K using 14 and %D.
S&P 500:
NASDAQ Composite
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