
Technical Analysis on How and When to Trade Volatile Markets
Friday's volatile up-and-down trading followed the better-than-expected employment data for October. Now market strategists and pundits are saying that a December interest rate hike by the Federal Reserve is a sure thing.
Investors and traders did not come to a conclusion as to whether or not slightly higher rates were bullish or bearish for stocks. The major averages traded back and forth below highs set earlier in the week. So how should investors trade the major indices?
Here's the current scorecard:
The Dow Jones Industrial AverageI:DJI closed at 17,910.27 on Friday, up 10% so far in the fourth quarter, up just 0.5% year to date and 2.4% below its all-time high of 18,351.35, set on May 19.
The S&P 500 I:GSPC closed at 2,099.22 on Friday, up 9.3% so far in the fourth quarter, up 2% year to date and just 1.7% below its all-time high of 2,134.72, set on May 20.
The Nasdaq CompositeI:IXIC closed at 5,147.12 on Friday, up 11.4% so far in the fourth quarter, up 8.7% year to date and just 1.6% below its all-time high of 5,231.94, set on July 20.
The Dow Jones Transportation AverageI:DJT closed at 8,241.43 on Friday, up 5.9% so far in the fourth quarter, down 9.8% year to date and still in correction territory, 11.5% below its all-time high of 9,310.33, set on Nov. 28, 2014.
The Russell 2000 closed at 1,199.74 on Friday up 9% so far in the fourth quarter and down just 0.4% year to date, but 7.4% below its all-time high of 1,296.00, set on June 23.
Here's the weekly chart and how to trade the Dow 30 using the SPDR Dow Jones Industrial Average ETF (DIA) - Get Report , a.k.a. Diamonds.
Courtesy of MetaStock Xenith
Diamonds had a close of $179.14 on Friday, up 10.2% so far in the fourth quarter and up just 0.7% year to date, and 2.3% below its all-time intraday high of $183.35, set on May 20.
The weekly chart has been positive since Oct. 16 and will be overbought this week, with the ETF above its key weekly moving average of $172.80. Diamonds is also above its 200-week simple moving average of $155.15, last tested on the flash crash of Aug. 24 when the average was $152.69 and the low was $150.57. The weekly momentum reading rose to 79.24 last week, up from 70.26 on Oct. 30.
At the flash crash low of $150.57 on Aug. 24, this ETF could have been bought at $150.80, which is a key level on technical charts until the end of 2015.
Investors looking to buy Diamonds should place a good till canceled limit order to buy the ETF if it drops to $167.52, which is a key level on technical charts until the end of November.
This week's key level of $178.87 should act as a magnet.
Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $185.58, which is a key level on technical charts until the end of 2015.
Here's the weekly chart and how to trade the S&P 500 using the SPDR S&P 500 ETF Trust (SPY) - Get Report , a.k.a. Spiders.
Courtesy of MetaStock Xenith
Spiders had a close of $210.04 on Friday, up 9.6% so far in the fourth quarter and up 2.2% year to date. It is 1.7% below its all-time intraday high of $213.78, set on May 20.
The weekly chart has been positive since Oct. 16 and will be overbought this week or next, with the ETF above its key weekly moving average of $204.07. Spiders is also above its 200-week simple moving average of $174.72, last tested during the week of Oct. 7, 2011, when the average was $114.40. The weekly momentum reading rose to 73.54 last week, up from 65.04 on Oct. 30.
Investors looking to buy Spiders should place a good till canceled limit order to buy the ETF if it drops to $199.85, which is a key level on technical charts for the month of November.
There's a key weekly level of $208.46, which should act as a magnet.
Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $215.18, which is a key level on technical charts until the end of the year.
Here's the weekly chart and how to trade the PowerShares QQQ Trust ETF (QQQ) - Get Report , known as QQQs.
Courtesy of MetaStock Xenith
QQQs had a close of $114.79 on Friday, up 12.8% so far in the fourth quarter and up 11.2% year to date, after setting an all-time high of $115.47 on Nov. 4.
The weekly chart has been positive since Oct. 16 and is now overbought, with the ETF above its key weekly moving average of $109.85. This ETF is also above its 200-week simple moving average of $84.48, last tested during the week of July 2, 2010, when the average was $42.48. The weekly momentum reading rose to 85.73 last week, up from 73.54 on Oct. 30, as the ETF surged into overbought territory above the 80.00 threshold.
At the flash crash low of $84.74 on Aug. 24, this ETF could have been bought at $89.43, which is a key level on technical charts until the end of 2015.
Investors looking to buy QQQs should place a good till canceled limit order to buy the ETF if it drops to $110.87 and $108.29, which are key levels on technical charts until the end of the year and to the end of November, respectively.
Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $118.40, which is a key level on technical charts until the end of 2015.
Here's the weekly chart and how to trade Dow Transports using the iShares Transportation Average ETF (IYT) - Get Report , a.k.a. Transports.
Here's the daily chart for the Transports ETF.
Courtesy of MetaStock Xenith
Transports had a close of $148.27 on Friday, up 6% so far in the fourth quarter and down 9.6% year to date, and still in correction territory -- 11.6% below its all-time intraday high of $167.80 set on Nov. 28, 2014.
The weekly chart has been positive since Oct. 9, with the ETF above its key weekly moving average of $146.23. Transports is also above its 200-week simple moving average of $125.22, last tested during the week of Oct. 7, 2011, when the average was $77.84. The weekly momentum reading rose to 74.37 last week, up from 69.89 on Oct. 30.
Investors looking to buy Transports should place a good till canceled limit order to buy the ETF if it drops to $141.41, which is a key level on technical charts until the end of 2015.
Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $150.35, which is a key level on technical charts until the end of this week.
Here's the weekly chart and how to trade small-caps using the iShares Russell 2000 ETF (IWM) - Get Report .
Here's the daily chart for the iShares Russell 2000 ETF
Courtesy of MetaStock Xenith
The small-cap ETF had a close of $119.22 on Friday, up 9.2% so far in the fourth quarter and down just 0.3% year to date. This ETF is 7.7% below its all-time intraday high of $129.10, set on June 24.
The weekly chart has been positive since Oct. 23, with the ETF above its key weekly moving average of $116.16. Small-caps is also above its 200-week simple moving average of $103.53, last tested during the week of Oct. 7, 2011, when the average was $65.19. The weekly momentum reading rose to 50.06 last week, up from 42.81 on Oct. 30.
Investors looking to buy the small-cap ETF should place a good till canceled limit order to buy the ETF if it drops to $115.72, which is a key level on technical charts until the end of November.
Investors looking to reduce holdings should place a good till canceled limit order to sell the ETF if it rises to $126.08, which is a key level on technical charts until the end of 2015.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.














