Gee, Think.

This is the Qs (QQQQ) price chart over the past 9 months. I’ve added the 5 and 8 day moving averages as well. I believe that I’ve read that the crossing of the moving averages is a market “signal”. When the shorter term moving average crosses under the longer term moving average heading downward, that’s a signal that the stock in question will continue to move downward. When the shorter term moving average crosses the longer term moving average heading upward, that’s a signal that the stock will continue upward.

In this chart the 5 day SMA is about to touch the 8 day SMA.  It’s probably going to cross moving upward tomorrow, and increase the spread between the two averages over tomorrow.  Judging by the recent pattern, the 5 day average will only cross the 8 day average briefly.  The larger trend of the Qs remains downward, which can be seen in moving averages on the weekly charts.

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In this chart we can see that the Qs have broken the trendline from my proposed elliot wave analysis. At this point I’m not sure what to expect. I’m not certain that my count has been correct, but if it is, I would expect the next A wave to provide a significant upswing over the next week or so. It will be interesting to see if the Qs bounc off the trendline as support today. Yesterday they bounced of it as resistance.

I’m going to guess that the Qs will head down again today. Now this is
a guess because I haven’t had much time to look at the charts again. I
would call it a prediction if I could be a little more specific. I’m
calling it a guess so that if I’m wrong I can shrug it off.
Now, if my calculations on my wave analysis of the Qs over the last 45
days are right, and further if wave 1 is related by equality to wave 3,
then wave 5 has not yet reached it’s target of approximately 37.00.
This target would relate wave five to waves one and three by 1.618
approximately.
Yesterday was a small interruption to what I think is the downward trend
of a bear market 5th wave extension. The action on tuesday was not of
enough amplitude to make me think that the fifth wave was over yet. If
we were entering the A, B, C, correction phase yesterday’s upswing would
have to continue much higher today. Yesterday’s uptick was probably a
correction from a smaller degree wave in wave 5.
I’l have to check the 5 and 8 day moving averages to be sure that I
think the downtrend will continue today.

3 Month Daily QQQQ with 4-Day Simple Moving Average, originally uploaded by Gare and Kitty.

I’m going to head out on a limb and call for today to be an up day. I know that there is a lot going on in the middle east with Israel and Lebannon. I know that this is pushing the price of Oil higher, which tends to hurt stocks.

However, the candle from yesterday looks like a great Doji, which typically signals that the trend is set for a reversal in the short term. In this chart we can see that the the Doji signal has been misleading several times, but at a glance I think it’s held for at least the very next day.

I’d like to add that after completing the fifth wave, there should be a retracement up to approximately the start of wave 4 as a minimum target. This could occur in a relatively straight line, but will likely have at least three distinct waves, A, B, and C. The end of wave C should be somewhere in the price territory of wave 4.

Okay… So my analysis of the Qs volatility (QQV) turned out to be completely and utterly wrong. The Qs did not experience any significant upward movement this week. Actually they’ve been dropping like a rock, and their volatility is still going up. It’s bouncing off some of the fibonacci levels that I drew in my chart, but its not really treating them as significant resistance.

I knew when I did this analysis that I had not been rigorous because I didn’t have much time to look at bonds, commodities, or currencies. I didn’t expect to be so completely wrong though.

So maybe I should continue my analysis, but with a different strategy. I’ll continue to analyze the markets and come up with my trading thesis. Then I’ll do the exact opposite. If I could have replayed my trading history since March 1st in this way, and including the opposite of my QQV predicition, I’d be up over 40% on the year. I figure that I could ride out this anti-thesis play for a while. Then once I start losing with it I’ll know that my analsys is actually getting good and I’ll switch.

This morning I took a couple minutes to try and supplement my Qs analysis. I pulled up the 60 day chart of the Dow 30 and the Gold / Silver indices. I’ve learned through John Murphy’s “Intermarket Analysis” that the common trend is to see Gold (as well as silver and other commodities) rising as stocks are falling. Now maybe I didn’t quite have something right, but I could swear that this morning around 6:15 am I was looking at uptrends in both charts! How could the gold / silver index be rising as stocks are rising? Perhaps this is foreshadowing a future fall in stock prices. Maybe this has something to do with the strength of the dollar. Right now I’m not sure, but am confused.

I did a quick fibonacci tracing of the gold silver index and I think its currently bouncing between two fibonacci levels, and is either basing before heading up or forming a double or triple top before heading down more sharply. I saw the index moving between these levels through its action over the last several days.

Man I really need a bigger view of the picture, and a bit more analysis expertise because I’d like to be able to say that I think its moving one direction or the other!

I am continuing to read “Intermarket Analysis” by John Murphy. I’m really learning a lot from it. Murphy really reinforces the basics of what Jim Cramer gave me on his Real Money Radio Show. I’m reading Murphy’s book on Constance Brown’s recommendation. She mentioned it in her book “All About Technical Analysis” so I have to give her credit for noticing a good read. I think she may have worked with him at some point.
When I first heard about sector rotation and intermarket analysis I didn’t fully appreciate is importance. First of all I thought that intermarket analysis was really about the influence of global stock markets on the US stock market. It turns out that is really about the inter-relaionships beween 4 major markets in the US as well as the global markets. The 4 markets are commodities, currencies, stocks, and bonds. The trends in each of these markets affects the others. The collection of trends seems to really compose a much more full picture of the invesing and trading environment. I suppose that you can trade or invest without looking at more than one market, but why take a gamble like that?

Time will tell if I can use this new information to my advantage, but it certainly will give me more confidence in my next trade. This extra analysis will take more work though, that’s for sure.

So today I’m looking into the Qs. This market is tough tough because
its incredibly volatile. I’ve been feeling a little outsmarted latley,
and have hit the books ever harder. My latest read, “Elliot Wave
Principal” is going quite well. The content is dense, but the material
should prove useful. The method is all about pattern recognition and
appreciation of the cycles in human behavior. The principal seems
founded on the idea that human behavior, psychology, and sentiment are
things which wax and wan like phases of the moon. This cyclical nature
is thought to be identifiable and predictable. The method of
identifying where we are in the cycle is no easy task, but I feel as if
I am starting to grasp the beginnings after several days of commuting
study.
So back to looking at the Qs…
There was an astonishing expanding triangle formed from approximately
May 12th to June 5th. The trend going into the triangle was bearish,
and the trend out of it was extremely bearish. Now I know that
triangles are prone to showing up at specific points in the Elliot Wave
cycles. I can probably use this triangle as a landmark in my future
analysis.

I just watched my first Darlene Nelson DVD on trading the Q’s last
night. Wow! It was only 45 minutes or so long, but it was really
informative. I feel like a learned a lot of really useful information
last night, but the real test will be to see how her advice works in
real life. My Dad (Ron) recommended Darlene Nelson a long time ago, and
I’m just now starting to see what he was raving about.