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Technical Analysis OIH QQQQ OIL Contracts SP500
Monday, December 18, 2006

Nightly Update - OIH, OIL Futures, $SPX & QQQQ

Good evening. I would like to know why it seems that holidays seem to distract traders from the market. It is almost as if the holidays create strange fluctuations in the market. The Big boys are on vacation and the rookies are in charge. At this time of year, there is a lot of whipsaw. If you are not aware of holiday trading patterns or fluctuations the more likely you are to overtrade. I like to go into hibernation in terms of trading and in putting out a lot of updates at this time of year. It is almost impossible it is to win. I do not like to trade at this time of year. This is because the fewer players there are, the easier it is to manipulate price, and the easier it is to move stocks in either direction up or down. Frothy can become frothier and selling can beget more selling on low volume.

Oil Services Holders ETF (OIH)- Weekly Chart
Now let's look at the OIH. I want to reiterate that when the OIH goes bullish as it indeed just did on the weekly chart, it often creates a counter trend pullback. When the OIH goes bullish we always pull back. This is the case if you observe the OIH chart today. This counter trend dip should last 3 to 5 days. I do not issue sell alerts when this 1-2-3 bullish trend reversal occurs because the dips are short and swift. This is the typical character of a bull market. Bull markets want to leave the most people behind. They can whipsaw you right out of a market. The bullish corrections typically hold trend lines and moving averages without changing the primary direction of the trend. As you can see the OIH is in a bullish trend. Today was most likely the harshest part of the dip, and our energy stocks will most likely trade sideways now, rather than down. Pullbacks are not fun backs! This also has a lot to do with Oil Futures contracts rolling over.

Oil Futures contracts are now rolling over into new ones. This creates added volatility in price. If you look at open interest, and you can see that people are now scaling out of January' s contract and moving into February and June contracts. That is why if you look at the continuous contract it smoothes out the noise in terms of the bigger picture or trend. Now let's go back and look at the OIH chart. Take a look at last December, and you will see that the OIH dipped to the 13 EMA. This dip created a bull flag, and lasted until the week after Christmas. Then the OIH rallied on up to make new 52 week highs in January. The OIH went from 126 to 158 in 20 trading days. The traders that got whipsawed out of the OIH during the swift dip when it had a bullish trend reversal last December surely regretted that in January! Remember this, Energy stocks are volatile and favored by momentum traders despite their low P/E's. Commodity related stocks trade in a wild and crazy manner. Therefore it pays to buy and hold them when they are in a bullish trend. Please take a look at the OIH/OIL comparison chart.

The S&P 500 Large Cap Index ($SPX) - Daily chart
As you can see, the $SPX is still trading in the middle of it's up trending channel and it continues to creep up. However, at this time, fewer and fewer stocks are now participating in this up trending move. This is somewhat suspicious. Despite this, the trend remains bullish. The $SPX has yet to break the middle of the channel to the upside or downside. Since the $SPX is trading right in the middle of the channel, it is riskier to trade now, because the overall market is frothy. Nevertheless, the uptrend remains strong. The top of the channel is a good 20 to 40 points away, and if the $SPX dropped to the 13 EMA which is at 1411, it would still be in it's channel. However, the $SPX is very stretched from it's moving averages in the short term. The RSI is showing light bearish divergence, yet the stochastics are bull flagging. The rest of the oscillators and indicators are in a 1-2-3 bullish trend reversal. Until the $SPX breaks the down trend line, I cannot suggest any shorts. Furthermore, if the $SPX hits the uptrend line around the 34 EMA I will most likely remain on the long side until the trend changes.

NASDAQ 100 Shares (QQQQ) - Daily chart
On the daily chart, the QQQQ's are trading in a nice up trending channel. The Q's made new 52 week highs in late November and have been consolidating in a sideways move ever since then. The Q's are close to the 34 EMA, but it would not surprise me if the Q's rally back up tomorrow. There is no bearish divergence and the up trend channel is intact.

By the way I am still watching JOYG for entry. I encourage you to look at the video update on JOYG.

Also please visit me in the Trading Chat room if you have any questions.

Transcribed by Daisy

Stock Charts

OIL FUTURES CONTRACTS (We roll this week) into new ones that does cause added price volatility

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