As a stock market trader for over 30 years and an educator of thousands of traders around the globe since 2004, I can tell you there's nothing more important than the combination of price and volume in determining the future direction of stock prices.
But the MACD comes close.
The moving average convergence divergence (MACD) is simply a formula that subtracts a longer-term exponential moving average (EMA) from a short-term EMA. As prices rise, the short-term EMA normally pulls away from the long-term EMA and the MACD follows prices higher. When prices move higher and the MACD does not -- that's when risks increase and many times this lethal combination precedes a correction.
Take the following example on the Dow Jones Transportation Average:
In 2011, the weekly MACD provided us a MAJOR warning sign that the momentum in transports was slowing. This index then lost nearly 30% of its value over the balance of the summer.
Is it déjà vu?
We're heading into August 2013 with similar MACD negative divergences
emerging on transports, as well as other key indices. Check out the benchmark
Notice that same long-term negative divergence on the MACD in 2011?
History tends to repeat itself and that's the beauty of technical analysis -- it helps us to predict the future by studying the past.
Personally, I use warning signs like this to assess risk. I'm actually bullish the balance of 2013 and early 2014, but I recognize the short-term risks that the MACD provides.
Given this warning sign of slowing momentum, I studied the component stocks on the Dow Jones, S&P 500 and NASDAQ 100 indices and formed a list of
15 stocks to AVOID (or short, if you'd like) as we head into the two worst consecutive calendar months on the S&P 500 since 1950.
I don't want you to make the mistake of holding these 15 stocks,
especially if the stock market does sell off in August and September.
That's why I'm going to make you a special offer...
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In addition to providing you a video detailing the 15 stocks I'd avoid, I've also recorded a video that details the
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My MACD video series alone retails for $197. (I told you this offer would be special.)
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Chief Market Strategist