The Dow Jones Industrial Average is still grinding sideways while the Nasdaq Composite has risen higher. What is the market going to do next? Although tech stocks and Dow is diverging, it is important to note that they will not diverge forever. One usually leads the other and when tech stock leads, it is usually good for the stock market as a whole. With Semiconductor sector making new highs, it will be good for the general market. So, we continue to remain bullish despite sideways movement for the Dow.
I look at the 60 min charts, daily charts and sometimes weekly charts and even smaller timeframes. It is important for us to do multiple time frame analysis as it often give us clues to what will happen in other timeframes.
Dow looks set to form a 60 min double bottom and this is a very good thing for Dow because a double bottom is a bullish reversal pattern that will propel the index higher. We will have to monitor the Dow futures and hope the support holds and Dow will move above the downtrendline. Once it does that, we will very likely has a few days nice rally upwards.
SPY which represents the S&P 500 index formed a bottoming tail and some dojis. Once it broke the downtrendline things look better for the SPX. It is currently consolidating awhile and a break above the handle will most likely move stocks higher.
QQQ had a brief fall intraday yesterday but eventually the bulls came in a n push the QQQ higher once more forming a bottoming tail in the daily charts. QQQ is in a strong uptrend and any continuation pattern is very likely to follow through and move tech stocks higher. A bottoming tail in an uptrend tells us that the index is rejecting to go lower. Everytime bears are trying to push it down, the bulls step in to push it higher. This is usually good for traders and give us an opportunity to buy continuation patterns in stocks.
The 60 min chart shows us that QQQ is trying very hard to form a box. Take a look at the unusual volume in the late hour. Usually closing hours have heavier than normal volume but the huge spike may be a sign that traders are loading up on techs and have a firmer conviction that the markets may move higher in the next few days.
The IWM or Russell 2000 ETF has also broken a short term downtrendline. The various candles and the fact that it sits at price support tells us the bias is likely to be upwards. Hopefully it follows through and bring many small cap stocks higher with it.
The midcaps are also trying to break a downtrendline at support. A bottoming tail formed recently telling us that price is rejecting to go lower. Hopefully the index will continue to break above the downtrendline at support.
Semiconductors stocks were the focus yesterday. NVDA reported earnings and investors are happy with the results sending the stock gapping up higher by at least 10%. Throughout the day, the stock gained momentum and was furiously attacked by day traders who pushed the stock higher. This kind of momentum are typical and common of stocks that gap up above a downtrendline.
With semiconductors index doing very well traditionally in May, I am of the view that Semi stocks will be in focus this month. Especially semi stocks that area making new highs and forming bullish continuation patterns. These stocks will provide great trading opportunities to traders.
Apple has been a very good stock to trade for a momentum long trades. Making new highs and the stock formed a nice 60 min triangle recently and broke higher into new highs surprising many people who saw it gapped down after earnings. Yesterday the stock formed a somewhat 60 min triangle again and I'm looking to see if there is another round of party that will push this stock higher. Triangles are great risk reward trades especially if the stock is making all time highs.
Amazon stock also looks like it is forming a triangle breakout at support. Or at least it looks like it is breaking a 60 min downtrendline. We shall see today whether the stock can break above it and resume higher.This stock is a bit expensive to buy but traders who really want to play this stock can consider buying call options. Do remember to buy call options that have a longer expiry period, say about 5 months so that time decay will not work against us that much.
Alibaba, Jack Ma's stock has recently moved higher and by the looks of it it can continue to rise. The more it rises, the richer Jack Ma will be and he will no doubt become the richest man in China again. BABA is in the same sector as Amazon. Both are in the specialty retail sector. Seasonally the months of May, June and July are very good for specialty retailers. With BABA making new highs, the seasonality may work in the favor of BABA and propel it higher. At least it will give us some nice swing trades. I'm setting an alarm on this one and see if it can breakout of the 60 min box. Chinese stocks seem to be flying higher these past 2 months. BABA is much cheaper than AMZN in price and this provides a better return for our money.
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