Friday, June 28, 2013

Downtrending Index Action Analysis


MetaStock SPRS Series - Week 125 - TechniTrader® Stock Discussion for MetaStock Users - Downtrending Index Action Analysis - June 28, 2013
By: Martha Stokes C.M.T.

 
During a short term correction certain indicators will expose bounce risk and short term directional shifts, which can help short term traders avoid whipsaws and other profit limiting price action.

Using the Hybrid Indicator™ TechniTrader® Volume Accumulation TTVA which is a Center Line Volume Oscillator CVO with Rate of Change ROC, the Swing and Day trader can identify important divergence and convergence patterns prior to tops and bottoms.


In the chart above for NASDAQ the runaway trendline pattern is weakening, with TTVA turning down diverging from price prior to the top formation. The convergence of TTVA and ROC reveals that shift for downside sentiment prior to the stock moving out of its consolidation. The pattern widens with ROC rising faster than TTVA which indicates bounce risk prior to the bounce occurring.

Price Rate of Change PRC and Rate of Change ROC in the bottom chart window shows that price is choppy, while TTVA leads running down faster than PRC during the sideways pattern before the gap down. When TTVA leads PRC it indicates more downside volume energy than candlesticks show by themselves.

There is much to observe with these indicators. Peaks and Trough patterns, Divergences, Angles of Ascent, and Angles of Descent all tell the technical trader information about what price will do next. Relational patterns between line price indicators and line volume indicators make it easier to see the relationship between price patterns and volume patterns.


Other indicators that expose Dark Pools and smaller funds activity as well as High Frequency Traders HFTs, are Volume which is not truncated and colored for easier analysis, and TechniTrader® Quiet Accumulation TTQA.

HFT volume patterns stand out and are easily identified. HFT volume patterns are contrarian or confirming depending on where in the trend they form and the length of the volume in relation to prior volume. Contrarian patterns such as the last HFT volume warn of bounces and whipsaws before they occur.

TTQA reflects extreme small funds buying speculatively prior to the top. The weakening TTQA is evidence and confirmation that the sideways pattern was a top. 

Position Traders watching for the beginning of a bottom formation, should use longer period settings because they work best.


In the chart above we can easily see that TTVA is near the bottom of its chart, and is extreme so an attempt at a bottom is likely to start soon to test these recent lows. TechniTrader® Flow of Funds TTFF shows that the overall institutional holdings and flow of funds has not been a huge dump, but a moderate rotation out of some of the COMPQX components. Both indicators have Angles of Descent that are too steep to sustain so upside action is needed to pattern this out.

We will be studying indicators in a TechniTrader® and MetaStock Partner Webinar in July. For more information go to http://technitrader.com/get-connected/

Trade wisely, 

Martha Stokes, C.M.T.
For more information email: info@technitrader.com
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
http://technitrader.com
MetaStock Partner
©2013 Decisions Unlimited, Inc.

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