Thursday, November 10, 2011

Quick Note

I believe that the markets are setting up for a very sharp move very soon. I expect it to be down. On a purely objective basis check out the DMI/ADX on the QQQ etf. The ADX is at a multi year low as the market is chopping around the top of the last year's range. Also, the ADX has been in a trendless mode for an extended period of time. As I mentioned in some greater detail a couple months back in relation to silver and the US Dollar, an extended trendless period is a basing/consolidation before another large move in the markets.

Also, check out the daily bollinger band configuration on the QQQ. Price has traded in a tight range for the last month, hanging out just above the 200 day SMA. The bands are now squeezed together which is setting up a breakout type move. So far today, the lower band has started to point down while the upper has pointed slightly up from yesterday. This is an indication of volatility expansion, and since price is going down, it is possibly a clue that the next move will be down. The most volatile moves will begin after a band squeeze with the bands suddenly separating sharply and the market closes outside the bands. The duration is always in question but my experience would say that the longer and choppier the trendless environment before the breakout, the sharper and larger the breakout move will be.

So, keep an eye on the bands over the next several days or weeks.

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