David's Weekly Stock Market Chartmentary Thursday Update

Unless something surprisingly devastating occurred when Hurricane Rita arrives, the market has already factored in Rita's effect and moved on. At least that's what the market's trying to do all day anyway; it's struggling to look past Rita in order to get back on track. But, try as it may, the market's still got a long way to go.

Chart 1 is one of my proprietary indicators that I've been using for short-term market timing. I'll call it the Market Strength Meter for now. After you become familiar with it, you're welcome to send me any name suggestion you may have. The unique feature about this meter is that it does NOT take into account the Price movement at all. Although price is the bottom line, it shouldn't be the most important element in technical analysis. In fact, too much focus on price may make us lose sight of the real weaknesses or strengths of the underlying stock or market.

This meter ranges from +1 to -1 although it's most likely moving between +/- 0.50. Anytime it swings outside of this range, it indicates extreme bullish or bearish market condition. Sell signal is given when the blue polynomial curve crosses below zero, and buy signal is issued when it crosses above zero.

I've marked the exact dates where the blue polynomial curve crosses above or below the red zero line. I've also provided a NASDAQ chart (Chart 2) for your reference. Red X's on the NASDAQ chart marked the same dates where my Market Strength Meter gave sell signals. You can see both of these sell signals were given on the days the NASDAQ market topped out.

The blue checkmark on the NASDAQ chart marked the day (Aug. 23) the polynomial curve crossed above zero, which was a buy signal. The buy signal missed the market bottom by about 2 days, but that's close enough for accumulation purpose. Long position doesn't have the same kind of time urgency as the short position does.

In any case, my Market Strength Meter is drifting further away from zero, and it shows no sign of bottoming yet. This indicates that the market is currently too weak to mount any meaningful comeback. And, it's got quite a way to go before it can get back on track.

Chart 1

Chart 2

Another sign of weakness can be traced on the QQQQ chart. In last Thursday's market update, Critical Supports, I explained why 38.91 was one of the critical supports on this chart (Chart 3).

Here's the updated chart showing that this support has been breached (yellow highlight). The intriguing part, however, is where I placed the red box. That boxed area between 38 and 37 was the Resistance and Support range I mentioned in my July 10 Sunday Chartmentary. Perhaps Chart 5 below would refresh our memory.

This was the chart I posted on July 10, the week of the London subway bombing. The possibility of returning to the pre-London-bombing level suddenly doesn't appear to be as remote anymore. If it does return to this level, it would be quite a fascinating technical charting event.

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