While trading I often use stocktwits (more on that to come) to get a pulse on the overall trading community. I see a lot of traders wondering why stocks are going down these days as the news is seemingly not as bad as it could be. Although I sometimes try to answer them from my personal technical perspective I thought I’d make a post on my blog about it for all to see.
Note: Please click on the charts to enlarge them as they cannot fully fit on the screen in this format
So here we go:
Looking at the latest rally off of the march lows we notice that the MACD histogram on the weekly charts was consistently going up until about mid may.
At this point, this technical indicator shows the rally’s upward acceleration fizzing out. Which indicates to me a correction coming.
In the chart above we can clearly see at the first arrow the March trend having a false breakout to the low side right when the weekly MACD histogram reversed. Only to be confirmed at the second arrow. The third arrow shows a further indication of a downward movement by looking at the directional movement indicator where the DM- line (red) shows that the bears have taken control of the market and the ADX line (purple) is rising to indicate a downward trend forming.
On this chart we clearly see a possible head and shoulder formation. As of today we are right at the support which might indicate the possible bounce off the neckline perhaps to S&P 900 area and then a heavy decline after that.
And at this final chart we see the MACD histogram on the weekly chart indicating a possible cross over to the downside and the price levels right at support. I am preparing some short positions for the day that this happens, I predict we will see some strong red shoots downwards.
And here on this final chart we see that the last 5 times the MACD histogram indicated downward movement it was the beginning and continuation of a nice downward trend.