Dow Plunges Back to Negative Territory

Wow! What a day to trade. The Dow futures have now relinquished all their gains for the entire day and are in the red for the moment. This has occurred in reaction to Fed Chairman Bernanke's speech this afternoon at Harvard University. I have noticed that the stock markets usually do not reaction very positively to the Fed Chairman's speeches. The S&P 500 also have give up its gains. However, the NASDAQ and S&P Mid-Cap futures are still in the black for the day.

Hints Toward Higher Stocks

I will often look at other stock index futures for hints of what my trades will do. Here are two. Based upon what these two charts are doing, what would you expect the Dow futures to do? My instinct (bias) for stocks to reverse downward, as I mentioned in my last post, may have been mistaken.

Divergences May Form
However, if prices on these two indexes move only slightly higher, then divergences are likely to form on some indicators, suggesting bearish reversals. Divergences on the Klinger Volume indicators, MACD, or Bollinger Squeeze indicators, are signs of waning momentum and eventual reversal. Astute traders are always looking for them. In the futures markets, it take much more capital to push prices higher, while it only takes a lack of new buying interest for prices to collapse and head lower. I believe I learned this from reading John Mauldin's free weekly newsletter. (This fact also suggests that speculators don't have the power to send prices higher, as suggested by those who would blame traders for higher commodity prices. They ascribe to us too much -- undeserved -- credit. )

S&P 400 Mid-Cap futures

The CME is eliminating the Russell 2000 Index futures following the Sept 08 contract. They are recommending that traders switch to the S&P 400 Mid-Cap or a few others mentioned on the CME website, alternatives to the Russell 2000 futures.

NASDAQ Index futures