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D-Day Of Indecision: ETF Dojis And Spinning Tops
Published April 25, 2017
On April 24, 2017, four major ETFs based off major indices made suspicious movements. DIA, IWM, and QQQ all gapped up and away from their recent trend channels. DIA and SPY achieved a doji symbol while IWM and QQQ achieved a spinning top. All of these symbolize indecision on the part of bear and bull traders. By the end of the day, there was little to no change between the Open and Close prices of the aforementioned ETFs.
One of these symbols for an individual stock can show potential reversal or indecision, but it is more telling when similar symbols occur across similar stocks or funds. When a gap occurs, it is normally filled (the stock reverses) within the next 10-15 trading days. Even though SPY did not gap up, it still remains in its trend channel. The next 3-5 days will be most telling of these funds and their indices as a whole.
RELATIVE STRENGTH INDEX (RSI)
RSI tends to determine trends, overbought and oversold levels as well as likelihood of price swings. I personally use anything above 75 as overbought and anything under 25 as oversold.
TRUE STRENGTH INDEX (TSI)
The TSI determines overbought/oversold levels and/or current trend. I solely use this as an indicator of trend as overbought and oversold levels vary. The TSI is double smoothed in its calculation and is a great indicator of upward and downward movement.
VORTEX INDICATOR (VI)
This indicator has two variables, a positive and a negative. When the positive level is higher than 1 and higher than the negative indicator, the overall price action is moving upward. When the negative level is higher than 1 and higher than the positive indicator, the overall price action is moving downward.
This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the price action is trending up. When the D value is higher that the K value, price action is trending down.
If SPY can continue to move up, it could break out of its trend and continue its bull run. If it stays within the channel, the fund will drop and could do so for a while. The fund is also approaching the apex of its trend channel/wedge. SPY will break out of this wedge, and on strong volume one way or the other will lead to continued movement in that direction.
The RSI is relatively neutral but slightly trending up. This movement could continue. The TSI has been trending down but has the potential to level out and move up again. Both VI variables are below one and fighting for direction. This is the second indicator of indecision. Lastly, the stochastic oscillator is neutral but has been trending up. Because the closing price and doji SPY achieved on April 24 remain in its trend channel, downward movement is still anticipated for SPY.
DIA's gap up has now placed it above previous resistance and its 50 day moving average. There are two likely paths moving forward. DIA could use this old resistance line as new support moving it higher, or it could drop below this line and begin moving down.
The RSI is relatively neutral but slightly trending up. This movement could continue. The TSI has been trending down but has the potential to level out and move up again. Both VI variables are below one and fighting for direction. This is the second indicator of indecision. Lastly, the stochastic oscillator is neutral but has begun trending up. The technicals do not necessarily support continued upward movement, but the next few days will confirm or deny if the upward movement is sustainable.
IWM's gap up is almost confirmation it has broken out of its recent trend channel. There is still a chance of it filing this gap and continuing down, but it is in the best position to move higher. If and when the gap fills, it will be crucial to see if the downward movement comes with above average volume.
The RSI is relatively neutral but trending up. This movement could continue. The TSI has been trending down but has appeared to have leveled off and began moving up again. Both VI variables are flirting with 1.00 and fighting for direction. Lastly, the stochastic oscillator is approaching overbought levels, but has 3-5 trading days before arrival. Once both the K and D are above 80, the fund could begin to drop. The technicals support continued upward movement for IWM.
QQQ's gap up could be short-lived as it nears its macro trend channel resistance line. Even though the gap up escaped its recent, albeit short 15 day trend, it will move down in the near-term. Right now the movement displayed by QQQ is cyclical and natural. It will be key to watch if the fund crosses below its recent support line which is currently between 131.20 and 131.50. A breach below this line could signal further downward movement, but a bounce at or near this level will continue the bull cycle for the fund.
The RSI is trending up and nearing overbought. The TSI has been trending down. Both VI variables are flirting with 1.00 and fighting for direction. Lastly, the stochastic oscillator is approaching overbought levels, but has 3-5 trading days before arrival. Once both the K and D are above 80, the fund could begin to drop. The technicals are not overwhelming in either direction which leads to more uncertainty with this fund.
DISCLOSURE: I am currently short on IWM, but considering a long position over the next 72 hours. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. Make sure appropriate research is conducted prior to taking any risk in a marketplace.