Weekly View of the Indexes

Jun 3, 2007: 9:06 AM CST

Here are basic weekly charts of the major indexes at a glance:

dow-weekly-june-3.png

nas-weekly-june-3.png

sp-weekly-june-3.png

With the exception of the Nasdaq, the Dow and S&P 500 are making new momentum highs confirmed by new price highs – a good picture. The technology focused Nasdaq is forming a weekly momentum divergence with price, in terms of swing highs – a caution sign, but no means to panic or doubt the rally.

Price on all indexes is far extended to the upside, which can happen indefinitely in strong trends. I define ‘overextended’ in terms of RSI above 70, Stochastic above 80, and price touching or exceeding the upper 20 period Bollinger Band (standard deviation function).

Notice from October 2006 until the February ‘plunge’ (which registered as a normal correction on the weekly charts) that the price exhibited the same overextended characteristics for about 4 months before a sharp and sudden correction. All charts showed momentum divergences with price before the correction which is typical of extended price runs.

I’ve read where some Elliott Wave Theory practitioners are saying we are at the end of a 5th wave and due for an ABC type correction, but time will tell on that. I’m not yet an Elliotician, yet am warming up more to the way to quantify price swings.

In my summary, now is probably not the time to invest your whole life savings into the market if you’ve been sitting on the sidelines all this time. I would recommend taking minor partial profits and ramping up your trailing stops if you have them. I see no compelling reason to panic and exit full positions yet – price needs to behave a bit wickedly before doing that. Remember trends have higher odds for continuation than reversal, and that is the environment and market principal guiding the current environment.

2 Comments

2 Responses to “Weekly View of the Indexes”

  1. bazza Says:

    Actually, I believe we are in the third major wave up, although we are currently in the 5th intermediate wave within the third major wave. This suggests after the wave 4 major correction, we should be going on to hit new highs again.

    It seems all very confusing, but this guy explains it pretty well.

    http://caldaroew.spaces.live.com/

  2. Corey Says:

    Thank you Bazza for your comment.

    I looked over the site your provided and will be studying further – thank you for providing the link.

    Elliott Wave is very interesting to me, and I have read conflicting interpretations as of late from various sources (my own fault for reading too much!) and I don’t feel I have the analytical skills yet to quantify waves for myself properly. Feel free to expand if you wish on the thought and I’d be happy to hear your topic.