Trade What You See

While common sense may suggest the markets should have taken a downturn in thelast 2-3 weeks, the markets have clearly thought otherwise.  All the major indices turned up and all followed through with their respective OVIsalso being positive.  

Last week the Dow, S&P and Nasdaq all formed neat bull flags, their OVIs were positive and all three duly delivered breakouts to the upside. 

Today we’re seeing signs of possible exhaustion as a sell-off began yesterday afternoon causing long shadows (tails) on the candlesticks.  Interestingly the Nasdaq’s OVI has turned negative over the last couple of days and the Nasdaq has recently been the most prescient of all the indices.  See the protracted sideways movements in December and January where the prices eventually broke out in the direction of the OVI (the first breakout was up in mid-late December, and the second breakout was down in mid January). 

The S&P and Dow are pressing against the January highs, while the Nasdaq has broken that high already. 

So we could be seeing the early signs of this rally faltering and a short term reversal.  We’ll soon see if this materializes and continues. However, in the meantime you must only trade what you see.  The only signs of bearishness right now are these doji type bars appearing. 

SPY (S&P 500 ETF) 

OVI just above water as the double top approaches: 

DIA (DJIA ETF) 

QQQQ (NASDAQ ETF) 

OVI down for two days … remember though, the pattern always comes first. 

GS

Formed a perfect Doji reversal yesterday and if it breaks through its low should be good for a few points down. 

Lastly, just to say I’m a bit quiet at the moment as I’m recording a new product that will help with trading non-flag breakouts using the OVI and also Doji Reversals.  Will post more soon though.