If you just look at the daily closes on the indexes, one would conclude that the market is relatively healthy and is still providing opportunities to buy. But when you look at it from other perspectives, you could draw a conclusion that is much different.

You’ve seen charts of the market in various time frequencies. While we don’t usually make trading decisions based on nano-time frequency charts, they are helpful to both drill down and see what’s happening under the surface. And with the case of an individual stock, these charts are useful to narrow down on a specific buy point.

So while everything looks OK on the Dow’s daily chart, we start to see some bearish patterns when looking at shorter time frequencies. Many times, changes in trends start to show up in the shorter time frequency charts. And by the time they show up in the weekly charts, it’s too late.

As you can see here, after emerging from an area of consolidation, the Dow has set-up a potential Rising Bearish Wedge. A break of the green upward trend line to the downside is what we need to see to confirm that the environment for buying stocks has cooled.

As we further drill down to the 15-minute time frequency, you can see the channel and upward trend line even more clearly. A break of the green line would trigger a short-sell entry if this were a stock.

You can also see there is still some room to the upside via blue line resistance The green line is all you need to know in this time frame as well as the 60-minute time frame above.

When you look at the NASDAQ, it’s pretty much the same as the Dow except that it’s more of a channel versus a wedge.

When looking at the NASDAQ in the 15-minute time frequency, you can see the tight channel even more pronounced…

So what does all of this mean? Well, for now, it gives us pause on the long side. A break of the trend lines would hamper upward progress in most issues as 3 out of 4 stocks follow the general trend of the market. And by the way, we aren’t seeing too many good looking long-side set-ups offering low risk entry points — which ought to tell you something, too.

And if the trend lines are broken, it sets up a move back down to the top of the May trading ranges.

Sincerely,
David Grandey
All About Trends

June 15, 2009

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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