Technical Indicators on the Weekly Chart

The weekly chart has just completed a potential perfected sell setup which is supported by the monthly chart (see yesterday’s post for details). Before one takes action there are more ‘ducks’ you want to see lined up. Keep in mind that after a perfected setup has occurred the market ‘usually’ experiences a trend reversal, correction, or consolidation within four price bars of bar #9. If one were to short the current market it would be in anticipation of a reversal.
There are two things I want to see before I would actually short the weekly chart. The first is an indication that momentum is failing. This is done by using two technical indicators: the RSI and Composite Index. Notice that while the RSI (Relative Strength Index) is at a new high for the move the Composite is failing to confirm. The Derivative oscillator is also failing to confirm the RSI high. This is the indication of momentum failure that we need to proceed with a possible trade. Keep in mind that the momentum divergences are only ‘pending’. We need the indicators to actually turn down to make the divergence ‘fact’.
Next we use the REI (Range Expansion Index) to approach the trade. The first requirement is for the REI to be above .45 (it is) and to have been above that level for less than six periods (it has). Next we need a closing price that is lower than the previous close. Since the price was up this week we must wait to see what occurs next week. If the coming week sees lower prices than we will be ready to look at final execution parameters to short the weekly chart.
Let’s see if weakness starts to become apparent this week.