Technicals | Mar 30 2010
By Rudi Filapek-Vandyck
The TechWizard is putting his neck on the chop block this morning, and it aint good news for investors banking on continued gains in the share market. The Wizard is of the view that what we are witnessing right now is the final stage of an intermediate top for global equities.
The Wizard explains he likes to observe weekly price charts for the Dow Jones Industrial Average as the basis for what he labels a “top down trading strategy”. It was from these beginnings that he maintained in January the sell-off would prove a short term buying opportunity.
That was a correct call. One of the signals used at the time was an ongoing bullish MACD indicator for the DJIA. In addition, the Wizard couldn't see any internal signs of weakness at the time.
This time, however, things look a bit differently, he reports. The Wizard's proprietary DP signal has appeared on his trading system and that is a worry. The Wizard explains this signal managed to pick the high in 2007 as well as the low in 2009. This time it is signalling another high is in the making.
The Wizard reports the DP signal in combination with divergence on charts between price action and the MACD indicator has proved a powerful and highly accurate indicator: it allowed the Wizard to recognise major turning points for equities both in 2007 and in 2009.
The Wizard also notes the number of major stocks actually pushing indices to higher levels is in decline, which is another signal for caution.
The difference with January is that price charts this time around are showing divergence on weekly charts for the DJIA. On top of this comes the ominous DP signal.
The TechWizard is now joining other bearish commentators by stating that April might well see higher levels for global equity indices, but it won't be the beginning of a new leg higher. Instead, he says, it will mark the high point for now.
The Wizard believes internal weakness is building and equities should form an intermediary peak over the next two to three weeks. After that, weakness should take over and bears will rule the market.
