Today's index technicals. With permission from the author, Arthur is allowing me to post a copy of his daily newsletter. Very informative and a must read for me daily. It's cheap. I think it is $59 for 6 months. Here is the link followed by today's commentary.
tdtrader.com
Tuesday 5-Feb-02 7:000AM New York / 12:00PMLondon ***General Comments***
The flu bug has been beaten and this week’s commentary schedule will
be as follows (all times Eastern):
-Mon-Wed 7AM: Short/Medium-Term Market Analysis with candlestick
charts
-Tuesday 12PM: Sector and Industry Overview
-Thursday 7AM: Short/Medium-Term Market Analysis with PnF charts.
-Thursday 12PM: Stock Picks and Pans
-Friday 7AM: Condensed (index summaries only) Short/Medium-Term Market
Analysis.
-Friday 12PM: Long-term Market Analysis and Review
***Market Comments***
There they go again: gold and bonds both advanced. These two
adversaries rarely sing form the same songbook and it may be
noteworthy.
***The Indices***
NDX Long-term (Charts: NDX candle – NDX PnF – QQQ): Despite breaking
above the Sep-00 trendline and rallying 59%, the Nasdaq 100 only
retraced 62% of its prior decline and remains well short of its prior
reaction high (2071). More recently, the index closed below trading
range support at 1550 and looks set to continue the long-term
downtrend.
NDX Medium-term (Charts: NDX candle – NDX PnF – QQQ): The Nasdaq 100
broke trading range support at 1500 to mark a continuation of the
medium-term downtrend. These are the key technical points:
-After breaking support at 1550 with a long black candlestick on
22-Jan (red arrow), the index formed a trading range between 1580 and
1500. The decline from 1710 to 1500 created an oversold condition, but
the inability to forge a reaction rally (>1580) showed underlying
weakness. The decline and close below 1500 indicates a continuation of
the prior decline (1710 to 1500 and projects a move to around 1370
(1710 – 1500 = 210, 1580 – 210 = 1370).
-The medium-term trend is decidedly bearish. The breakdown has been
developing over the last few months: failed breakout on 5-Dec, rising
wedge trendline break on 12-Dec, lower high at 1710, gap down on
14-Dec and lower low on 18-Jan. In addition, the McClellan Volume
Index formed a negative divergence and moved below its signal line on
15-Jan and the McClellan Oscillators formed large negative divergences
and turned negative on 11-Jan. And finally, there was the 30min PnF
quadruple bottom support break (bear signal) on 18-Jan.
-The projections range from 1370 (trading range break) to 1250 (PnF
target), to 1335 (62% retracement). While targets can sometimes be
helpful, we should not count on support holding or a reversal at these
levels. The trend is bearish and will remain so until proven
otherwise. As long as the trend remains bearish, the expectation is
for support NOT to hold, resistance to hold and lower lows.
-Key indicators remain bearish. The TMO (momentum) and DMI Net
(direction) remain in negative territory and below their signal lines.
The PAI moved below its signal line on 21-Dec and remains in bear
mode.
-Nasdaq breadth: AD Ratio (.36), AD Volume Ratio (.17), TRIN (.36/.17=
2.11) and Volume (1.76). Nasdaq breadth stats remain bearish. The
Nasdaq AD Ratio dipped to .36, it lowest level since 17-Sept. Weakness
in the AD Statistics reflects the broadness of yesterday’s selling
pressure. All 5-day SMAs are trading in bear mode: AD Ratio and AD
Volume Ratio < 1 and TRIN > 1.
1-4 week view: Bearish – Lower high, lower low and trendline break are
bearish.
Potential Support: 1335 (gray circle)
KEY Resistance: 1580 (red circle)
NDX Short-term (Charts: NDX candle - NDX PnF - QQQ): There is a lot of
zig and zag, but the overall trend remains down. These are the key
technical points:
- The index moved straight down the first 2 1/2 hours before
stabilizing and forming a small flag with support around 1485. The
move below 1485 signals a continuation of the decline and projects
further weakness to around 1440 (1540 – 1485 = 55, 1495 – 55 = 1440).
-After a lower low at 1481, the Nasdaq 100 retraced about 62% of the
prior decline and formed a lower high at 1561. The ensuing lower low
on Monday reaffirms the downtrend.
-The index opened weak and finished weak. In the process, the Nasdaq
100 broke support at 1500 and finished at its lowest level since early
November.
-For now, I have marked key resistance at 1500 (prior support), but
this level is likely to change.
-Key indicators remain bearish. The TMO and DMI Net are in negative
territory and below their signal lines. The PAI moved to a new
reaction low and remains below its signal line.
-4-Feb: The index opened strong on Thursday, but failed to follow
through. Friday’s open was again rather strong, but the index failed
to hold early gains and slipped below 1540.
-4-Feb: The index established solid resistance at 1580 with three
failed attempts to breakout. The third attempt was followed by support
breaks at 1545 and 1500.
1-5 day view: Bearish – Getting oversold, but lower lows, weak
indicators and bad breadth are bearish.
Potential Support: 1470? (gray circle)
KEY Resistance: 1500 (red circle)
Nasdaq 100 Summary:
Position traders: No position at present. The bear trend was
established with the lower high, trendline break and lower low. The
recent support break at 1500 simply reaffirms the bearish premise and
raises the odds of a move to at least 1350. In bear markets, support
levels are only potential and NOT excepted to hold. Resistance levels
become KEY to the next trend reversal. As long as the index remains
below 1600, the decision is easy: remain short or out. A move above
1600 with expanding volume (> 2 billion) would complicate matters, but
I will cross that bridge if and when it comes.
Swing traders: Short positions were established around 1525 (QQQ
37.90) on Friday and possibly again on Monday’s open around the same
level. The sharp decline, consolidation and support break at 1485
suggest a continuation of the current move. Even though the index is
oversold, rallies are likely to induce selling pressure and the index
remains in bear mode by all accounts. A move above 1500 (QQQ 37.4) for
more than 30min (three 10min bars) could be used as a stop-loss.
***S&P 500***
SPX Long-term (Charts: SPX candle – SPX PnF - SPY): The S&P 500
remains in a long-term downtrend and recent support breaks in the
medium-term trend suggest a resumption of the decline. The index
retraced 62% of its prior decline and met resistance from the summer
support break. The index broke medium-term support mid-week, but
managed to close above the break by forming a long lower shadow last
week. The break shows underlying weakness, but the reversal indicates
some residual buying pressure (bargain hunting) – not new buying.
SPX Medium-term (Charts: SPX candle – SPX PnF - SPY): The index failed
in its meager bid to reverse course and moved back below double bottom
support to reaffirm the bearish trend. These are the key technical
points:
-The index closed below 1114 for 3 of the last 5 days and is currently
1.7% below double bottom support at 1114. The index may be oversold,
but the lower closing levels and reversal failures are bearish.
-The failed reversal and further weakness establish 1140 as the KEY
resistance level and I will remain bearish while this level holds. A
reversal from current levels would be quite remarkable and a move
above 1140 well worth noting, but that remains a big IF.
-SPY gapped up on the open last Thursday and gapped down on Monday’s
open. The sudden reversal shows that the Fed-induced rally late last
week was a fluke or head-fake.
-Key indicators are bearish. There was a blip (up) in the TMO last
week, but the indicator never made it above its signal line and
remains in negative territory. DMI Net remains in a downtrend as it
moved further into negative territory. The PAI, which recorded a lower
low last week, remains below its signal line and in bear mode.
-It is always good to check in on the larger forces at work: the
failed breakout at 1173 on 5-Dec, the lower low at 1114, the bearish
engulfing in early Jan (red arrow), the double top, the trendline
break/gap down on 14-Jan and the lower low on 29-Jan. In addition, key
oscillators formed negative divergences and confirmed with further
weakness. The trend and indicators are definitely bearish and shall
remain so until proven otherwise. The path of least resistance is
down.
-NYSE breadth: AD Ratio (.43), AD Volume Ratio (.15), TRIN (.43/.15=
2.9) and volume (1.45). NYSE breadth stats remain bearish overall. The
AD Ratio dipped to its lowest level since Sept-01 and the AD Volume
Ratio to its lowest level since Apr-01. Their 5-day SMAs remain above
1 for now, but are unlikely to stay above 1 with another day or two of
weakness. The TRIN finished at 2.9 and remains bearish.
-4-Feb: We could be in for choppy price action with downward drift,
which would make trading difficult. The expected double top decline is
to around 1053 (1175 – 1114 = 61, 1114 – 61 = 1053). It may take a few
days, a few weeks or even a few months. The timeframe is not as
important as trend identification. A bear trend has been identified
and it will remain in force until proven otherwise.
1-4 week view: Bearish – Trendline break, gap down (14-Jan), weak
indicators and double top keep my stance bearish.
Potential Support: 1080 (gray circle)
KEY Resistance: 1140 (red circle)
SPX Short-term (Charts: SPX candle – SPX PnF - SPY): The S&P 500
formed a lower high (<1140) and broke support at 1120 to establish a
short-term bear trend. These are the key technical points:
-The index opened weak and finished weak. There was a small
consolidation around 1100, but late afternoon selling pressure pushed
the index below 1095.
-Despite the sharp decline, the index remains above its prior low at
1081, which could provide support and a bounce.
-The gyrations over the last 5-days have been quite volatile, but the
overall trajectory is down.
-Key indicators are bearish. The TMO and DMI Net moved into negative
territory and below their signal lines. In the last 4 days, these
indicators have moved from oversold to overbought and back to oversold
again. Nonetheless, they remain in negative territory and bearish at
the moment. The PAI moved below its signal line, but remains above its
prior reaction low.
1-5 day view: Bearish – Weak open, weak close, support break and
bearish indicators keep the bear in control.
Potential Support: 1085 (gray circle)
KEY Resistance: 1103 (red circle)
S&P 500 Summary:
For position traders: No position at present. The index attempted to
reverse on Wednesday and Thursday, but stalled on Friday and took back
most of its gains on Monday. The swiftness of the decline proves the
shortcomings of the attempted reversal and reaffirms the bearish
stance. Even though key indicators, breadth and the price chart are
decidedly bearish, the index may still trade in a choppy manner with
downward drift. Just keep in mind the larger picture: the trendline
break, double top and lower low make the trend bearish. While it may
be difficult to short, the bear trend has been identified and there
are only two possible positions: out or short.
For swing traders: In the last 5 days, the index has declined 55
points, advanced 50 points and declined 35 points. The swings are
incredible and profitability can only be obtained by remaining short
or changing sides on the smallest reversal. I have marked key
resistance at 1103 and would look to close long positions on a move
above this level for more than 30min (three 10min bars). With the
medium and long-term trends bearish, I would abstain from long
positions in the current market environment.
***Dow Industrials***
INDU Long-term (Charts: INDU candle – INDU PnF - DIA): The Dow
continues to hold out at 9700, but remains in a long-term downtrend.
The big picture is dominated by the lower low at 8062, the ~62%
retracement and resistance from the summer consolidation. The average
broke the medium-term trendline extending up from late Sept-01, but
has yet to fully break support at 9700. Last week’s long lower shadow
shows a Fed-induced reversal in the making, but remains short of
bullish confirmation. The index has yet to invalidate the trendline
break, two long black candlesticks and key resistance at 10300.
INDU Medium-term (Charts: INDU candle – INDU PnF - DIA): After a doji
on Friday, the Dow declined sharply on Monday and finished near 9700.
Even though this level seems to mark important support, the
medium-term trend remains bearish. These are the key technical points:
-The potential reversal (Wed/Thurs) ended with a doji on Friday
(indecision) and was followed by a long black candlestick on Monday.
Taken out of context, the formation would be an evening doji star. The
prior advance (Wed/Thur only) is a bit short to justify a bear
reversal, but the pattern argues for at least a continuation of the
prior decline from 10300 to 9700. At the very least, the doji
reinforces resistance at 9950.
-The current consolidation has carried on longer than I would have
thought, which makes its ultimate resolution even more important. A
convincing move below 9700 argues for lower prices and a break above
9945 would be bullish.
-Key indicators still favor the bears. The PVO advanced to the zero
line, but failed to break into positive territory and remains bearish
overall. The PAI remains below its signal line and in bear mode. DMI
Net has been negative since mid January and continues to favor the
bears.
-4-Feb: The consolidation over the last few weeks looks like a small
broadening formation – lower lows and higher highs. The lower lows
shows selling pressure, the higher highs buying pressure and the
combination just plain volatility. These swings indicate a high degree
of uncertainty and raise the level of risk in the current market.
-31-Jan: An expanding-right-triangle formed over the last two months
with support at 9700. These are bearish reversal patterns that are
confirmed with a support break. The downside projection would be to
around 9100 (10300 – 9700 = 600, 9700 – 600 = 9100).
-14-Jan: The Dow failed in its bid to break above 10300 and declined
back to 9700. The decline broke below the Sep-01 trendline and support
around 10000.
1-4 week view: Bearish – Failed breakout at 10200, trendline break,
lower low (<9736) and weak indicators are bearish.
Potential Support: 9700 (green circle)
KEY Resistance: 9950 (red circle)
INDU Short-term (Charts: INDU candle – INDU PnF - DIA): The failed in
its bid to break resistance at 9900 and broke support at 9875 to turn
bearish. The key technical points are as follows:
-The resistance breakout at 9900 failed and the Dow declined below
support at 9875 to establish a bearish trend.
-The current decline retraced 62% of the prior advance and the index
found support around 9700, which is also above the prior reaction low
at 9529.
-The broadening formation makes the signals a bit mixed, but the last
signal on the 30min chart was bearish and has yet to be proven
otherwise. As long as the broadening formation remains, we could be in
for more volatility (eg another swing up).
-Key indicators are bearish. The PVO and DMI Net moved into negative
territory and remain below their signal lines. The PAI also moved
below its signal line, but remains above its 30-Jan reaction low.
-4-Feb: The Dow moved from a lower low at 9529 to a higher high at
9943. Normally, a higher high would be bullish, but not when taken in
context with prior movements (eg the broadening formation).
1-5 day view: Bearish – The latest reversal is bearish and will remain
so as long as the average holds below 9770.
Potential Support: 9690 (gray circle)
KEY Resistance: 9770 (red circle)
Dow Summary:
For position traders: Short positions were established on the 4-Feb
open around 9905 (DIA 99.1). The short-term broadening formation makes
the medium-term dependent on a breakout. A move above 9950 would be
bullish and a move below 9700 bearish. The average is at support
around 9700 yet again and could be in for a reactionary bounce after
becoming oversold yesterday. As a position trader, I would not become
concerned unless this bounce exceeds 9900. For now, I would keep my
stop-loss at 9960 (DIA 99.6). The medium-term still favors the bears,
but remains just short of final confirmation with a convincing move
below 9700.
For swing traders: The Dow reversed course, broke support and fell
back to 9700 with relative ease. The speed of the decline reflects the
lack of conviction behind last week’s rally on Wed and Thurs. The
average remains within the broadening formation and prone to wild
swings still. With the Dow oversold and at support, the odds of a
reactionary bounce increase. I think it is important to allow some
leeway for a bounce and remain short. As long as the average stays
below 9770, I would stay bearish. A move above 9770 for more than
30min (three 10min bars) would be enough to move back to the
sidelines. As long as the broadening formation remains and the
medium-term bias is bearish, I would refrain from long positions.
***Commentary Follow-up***
The commentary follow-up is a select group of securities chosen from
the daily commentaries. Not all securities will be followed and
inclusion in this list should not be viewed as a recommendation to buy
or sell said securities. The goal is to follow these select securities
from the initial commentary until the original opinion is proven
otherwise.
There are currently no stocks or groups in the commentary follow up. I
will look to make additions later today and on Thursday. |
