{"id":4805,"date":"2016-11-11T05:11:13","date_gmt":"2016-11-11T10:11:13","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4805"},"modified":"2022-04-06T15:05:00","modified_gmt":"2022-04-06T19:05:00","slug":"stock-charts-not-donald","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/stock-charts-not-donald\/","title":{"rendered":"Focus On The Stock Charts Now, Not The Donald"},"content":{"rendered":"
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Focus on what really matters now.<\/figcaption><\/figure>\n

It’s been a roller coaster ride in the stock market in the two trading sessions since Donald Trump became elected as our 45th president.<\/p>\n

But all we’ve seen so far is a typical knee-jerk reaction (volatile, indecisive price action) to an unexpected news event.<\/p>\n

The real\u00a0<\/em>direction of the market’s next move is more important.<\/p>\n

By now, you probably have encountered\u00a0a plethora of opinions<\/em> on how The Donald will affect the future direction of the stock market.<\/p>\n

Just browse\u00a0the front page of any major financial news site\u00a0and you’ll see what I mean.<\/p>\n

However,\u00a0as always, I prefer to throw all opinions in the recycling bin and rely on proven chart patterns and technical analysis instead.<\/p>\n

Continue reading to see what the charts are telling us<\/strong> about how the stock market may finish up the year.<\/p>\n

Drastic Divergence<\/strong><\/h3>\n

This week, we have noticed institutional money flowing out of technology and into more “traditional” sectors such as Financials.<\/p>\n

Small-cap stocks have also started seeing positive money flow.<\/p>\n

Such sector rotation is causing the NASDAQ to exhibit relative weakness,\u00a0but not for the S&P 500 or small-cap Russell 2000.<\/p>\n

Let’s start with a\u00a0weekly chart of the benchmark\u00a0S&P 500 Index SPDR ($SPY):<\/p>\n

\"161110spy3\"<\/p>\n

Notice that\u00a0S&P 500 SPDR ($SPY) is currently trading at a 3-week high.<\/p>\n

$SPY has also pushed above resistance of both its 10-week moving average (teal line)\u00a0and<\/em> downtrend line from the summer high.<\/p>\n

The iShares Russell 2000 Index ($IWM) is showing a similar pattern to $SPY, indicating money flowing into small-caps now:<\/p>\n

\"161110iwm3\"<\/p>\n

This week’s strong surge\u00a0(so far) suggest that last week’s lows may now act as key support <\/strong>levels in $SPY and $IWM.<\/p>\n

With new “swing lows” possibly in place, both of these ETFs could build new bases of consolidation<\/a> and trade sideways\u00a0in the coming weeks.<\/p>\n

However, I feel strongly that sudden relative weakness in NASDAQ 100 ETF ($QQQ) is a major concern.<\/p>\n

Unlike $SPY and $IWM, notice that $QQQ failed to move above resistance of last week’s high and<\/em> 10-week moving average:<\/p>\n

\"161110qqq3\"<\/p>\n

While $SPY and $IWM are rallying above significant, short-term resistance levels, $QQQ is stuck in the mud and spinning its tires.<\/em><\/p>\n

Just a bit of selling pressure in the market could cause $QQQ to break down below key support of last week’s low.<\/p>\n

As shown by the horizontal pink line, last week’s low also converges with the low of September, making that support level even more substantial.<\/p>\n

Actually, horizontal convergence of that support level reminds me of the neckline of\u00a0a bearish head and shoulders<\/a> pattern (though it’s not<\/em> a very textbook formation).<\/p>\n

So, grab a sticky note and marker, then write in big letters: “QQQ – $113.45”<\/strong> because that is the magic price level to watch<\/strong> in the coming days.<\/p>\n

If $QQQ breaks below $113.45, you should use extreme caution on all long positions because stocks drop faster than they rise, especially when key support levels are violated.<\/p>\n

Nevertheless, it’s hard to be overly bearish on the market when we’re still seeing extremely bullish divergence and money flow into the Financial sector:<\/p>\n

\"161110xlf3\"<\/p>\n

The Financial Sector SPDR ($XLF) had a monster breakout to a fresh 52-week high this week.<\/p>\n

Higher volume confirmed the institutional sector rotation into financials.<\/p>\n

Tug Of War<\/strong><\/h3>\n

With Financials rocketing higher while Tech stocks are in danger of losing major support, swing trading may be challenging right now.<\/strong><\/p>\n

This is because divergent markets are typically marked by high indecision and volatility,<\/em>\u00a0both throughout the trading session\u00a0and<\/em> from day to day.<\/p>\n

As such, I humbly suggest minimizing your capital risk by reducing your average share size <\/strong>for all new stock and ETF trade entries.<\/p>\n

When the tug of war in the stock market eventually resolves itself, we can look forward to a new trend being established.<\/p>\n

What do you think is the market’s next move from here? Share your comments below.<\/em><\/p>\n

Regardless of which direction the trend eventually resolves itself, our plan is to consistently\u00a0profit from swing trading<\/a><\/strong> stocks and ETFs (as we have been doing since 2002).<\/p>\n