Wednesday, March 12, 2008

Wednesday Qs wrap

After an initial follow through of yesterday's strength, the Qs went into a holding pattern for most of the afternoon session before a modest late-day selloff. Although the Qs did manage a R1 break, it was short lived and that failure signalled the weakness to come. The 5 minute 20 SMA line typically provides a great tell for the turns and the last couple days have been good examples. The 5 minute 20 SMA also worked well on the NYAD and would have kept you short (or at least not long) into the close. The upslope ADX on the NYAD starting at 15:00 was another confirmation for the shorts that the Qs were going to be weak into the close.
But wait, you say. . .the NYAD reflects the NYSE. My response is, that's true, but the positive correlation between the NYAD and Qs behavior is uncanny, and if you spend a little time watching the NYAD in sync time frames with the Qs, you'll see what I mean.
Dr. Brett talked about dropping a 10SMA on the TICK to determine short term trend. I echo the idea along with watching the NYAD, although I prefer a 2 minute bar look since the length of my typical trade is seldom over 120 minutes. Using a MACD histogram or single line MA component of the MACD (5,20,3) or (3,10,16) in a study pane will also yield good turn signals once you become familiar with the pattern.
Tactically, I was hoping for a little more upside in the Qs and the other indices for a couple days to really build up the overbought momentum. Today's action instead demonstrated that "sell the rally" is still the prevailing mantra. The XLF's looked particularly weak going into the afternoon session, so any new longs should be viewed cautiously.

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