Tuesday, December 09, 2008

Using Non-Confirmation To Trade The Stock Indices



Today was a great example of using non-confirmation to trade the stock indices. A healthy stock market is when all the major indices move together making new highs and new lows. If we happen to notice the Dow making new highs but the NASDAQ is not, that is a sign of weakness and the odds increase for a sell off to take place which is exactly what happened today.

If you look at the above 5 minute two day chart of the Dow Jones Industrials and the NASDAQ, you'll notice something very interested that took place. At around 11:00 the NASDAQ rallied and took out the high from the previous day but the Dow Jones Industrials failed to take out the previous day's high. This is considered bearish because the Dow failed to confirm the new high in the NASDAQ. This is a great example of non-confirmation and as you can see the stock market sold off going into the close.

Nothing works 100% of the time, but if you are going to trade you want to put the odds on your side and one way to do so is by taking advantage of non-confirmation in the marketplace. Use it well.

2 comments:

frank said...

Kevin

Can you please up-date you canadian dollar chart. Looks to me like it broke out ofthe triangle.

What do you think?

Kevin said...

I will at the end of the week. I don't think the canadian dollar broke out of the triangle. If this currency rallies above the high from November 25th, then the triangle is no longer valid. I actually shorted this near the lows. I should have waited for the canadian dollar to close below support...

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