Our market trend indicators remain positive but some profit taking produced two distribution days for the NASDAQ Composite this week. The NASDAQ was the only major index to close down (0.5%). Although volume remained above the 50 day average each day, significantly these distribution days were not offset by any accumulation days. Our slope chart, which is a proxy for momentum clearly shows the index is moving into consolidation, so we can expect fewer breakouts as prices drift down. That trend is already apparent with only 8 modest breakouts this week.

Keltner Channel and Squeeze indicator

Our Technical Analysis charts received two new indicators this week : Keltner Channels and a Squeeze indicator. The charts also now have the ability to show two channel overlays simultaneously. This allows the display of Bollinger Bands and Keltner Channels together from which the Squeeze indicator is derived.

A Keltner Channel is similar to a Bollinger Band but is less volatile. Like the BB, it is an indicator of oversold or overbought conditions, but in neither case are they automatic sell or buy signals when prices move outside the channel or band.

A Squeeze signal occurs when the more volatile BB moves inside the Keltner Channel and is a signal that a breakout from the Keltner Channel could soon occur. The Squeeze signal is usually used in conjunction with the Momentum indicator. The Momentum indicator gives the direction in which the breakout will occur. Our slope indicator when used with a period of 12 days is almost identical to the momentum indicator, but more graphical. The image to the left shows how you might use these indicators together, and below we show the resulting 6-month chart for AAPL.

More on the Squeeze Indicator

I just learned of this indicator this week and I'm looking forward to doing more research on it. If it can be combined with our other patterns, it may give another dimension to our ability to pick winning breakouts as they happen. In particular, it may enable us to pick winners while they are still low in their bases,

For example, FSLR was a recent strong breakout, from a classic CwH base. The squeeze indicator predicted the  upward move while it was low in its base and that move turned out to be a gain of over 50%.



I invite you to look at charts of other breakouts and stocks on our current watchlists using these indicatora and let me know if you find them useful.