It’s quite rare to get a reading in the ADX (Average Directional Index) of less than 10, but the DIA 5-minute chart is currently showing compression such that the ADX value is 8.77.  Let’s look at this and see what it might mean.

DIA 5-min chart:

In StockCharts, the ADX actually displays the + and - DMI (Directional Movement Indexes) as the green and red lines in the bottom panel indicator.  Ignore those for a moment and focus on the average, or the Black Line traditionally known as the ADX.

A Low ADX represents market compression, while a high ADX represents market expansion and is based on the principle “Price alternates between range compression and expansion.”

Traditionally, when the ADX is low, we need to be looking for an expansion move to occur, and also we need to avoid using moving averages for trading decision assistance.  Also, we need to eliminate usage of the 3/10 Oscillator because it is giving no discernible reading.  I highlighted that to show that you receive no trading signals off the 3/10 either.

I wanted to highlight the current chart with 30 minutes left in the trading day because I wanted to show a screen cap of this action as it was happening and place up a quick comment.

Basically, in these conditions, traders want to stand aside (not trade) but wait for a breakout of consolidation to enter a trade to play for perhaps a large relative target.  We don’t know which way price will expand, but we can have our guesses.  You might even want to place a bracket order outside the ‘rectangle’ that has formed about the $84 and $85.50 level.  Either way, it’s best not to beat yourself up trading within this narrowing range.

Watch this closely into the close.  Markets can’t stay ‘balanced’ or rangebound for ever.