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Option Millionaires was started in February 2008 to provide traders with information about option trading. Led by three career option traders, whose pseudonyms are JimmyBob, UraniumPintoBeans, and Vantillian, they started one of the most popular option trading communities on the web. Now, Option... More
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  • Short Term Market Momentum Weakening - One Last Rally? 0 comments
    Jul 30, 2012 10:44 PM | about stocks: SPY, DIA, QQQ, IWM

    ​By Chris Diodato

    ​In the past two months, the major indices have been a dream for momentum analysts. Take a look at this chart of the Dow Jones Industrials (NYSEARCA:DIA).

    (click to enlarge)

    The market seems to make a momentum peak about three days, on average, before the actual peak in stock prices. This pattern is very well defined in the last six minor tops and bottoms. Now, let's take it one step further and add overbought and oversold zones to the momentum.

    (click to enlarge)

    Note that momentum always peaks in the "overbought" zone. So now, with our charts labeled, we can forecast. If we continue in this "sideways range," then we should assume that the maximum overbought momentum reading was placed last Friday, and the market should advance slightly higher until later this week, while the momentum diverges downward. Eventually, price will also reverse downward. I have several market pivot times set to occur specifically on August 2nd.

    Until then, the Dow looks ready to touch 13,300 and the S & P (NYSEARCA:SPY) close to its May high!

    Happy trading!

    Disclosure: I am short SPY.

    Stocks: SPY, DIA, QQQ, IWM
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