Following is Hill's market commentary at midday today, with my thanks to him as always ...
***Market Overview***
As of this writing (11AM ET Friday), the markets are down hard with
the S&P 500 testing support around 870, the Nasdaq 100 testing 1000
and the Dow breaking to its lowest level since 28-Oct. The Dow and S&P
500 are clearly weaker than the Nasdaq 100 as non-techs bear the brunt
of selling pressure. The scope and speed of the decline is truly
breadth taking as bids (buyers) simply disappear. Sustainable uptrends
require new buying and expanding volume. Sustainable declines and
downtrends, on the other hand, do not require new fuel or even
expanding selling pressure. An absence of buyers is like pulling the
rug from under the market’s feet and the only result is a hard fall.
The usual reasoning abounds, but this may also be triggered by the
fear of being long over super bowl weekend.
With the S&P 500 and Dow leading the way down, there are few places to
hide, gold and oil being two of the few bull markets around. After the
early January advance on light volume, the bulls got the benefit of
the doubt as long as these breakouts held. With a gap down and sharp
decline (last Friday), NDX and SPX moved below these breakouts to
question both the medium-term and long-term uptrends. In addition,
weekly bearish engulfing patterns formed for the second time in as
many months and it was clear that buyers lacked the muscle to push
stocks higher. The weekly chart patterns may evolve into falling flags
or corrections (ABC), but it is wise to respect the decline by staying
out (as long as the flag falls). As noted earlier this week, there are
some eerie similarities between the current Dec/Jan peak and that of a
year ago, which led to a 10 month decline.
***NDX*** On the weekly candle chart, NDX formed a bearish engulfing
two weeks ago and appears to be firming this week. This was the second
bearish engulfing or outside reversal (gray arrows) in as many months
and reflects buyer impotence. These patterns have bearish implications
and signal that further weakness is likely before the index makes
another attempt at resistance. The pattern since Dec-02 looks like a
falling flag or price channel that extends to around 950 over the next
few weeks. A move above the upper trendline would revive the bulls and
call for a continuation of the Oct-Dec advance. Without a breakout at
1100, the bullish case is weak. Key indicators are neutral with RSI
trading right at 50, the PVI consolidating and relative strength flat.
Charts: monthly candle - weekly candle – daily PnF – breadth
***SPX*** On the weekly candle chart, SPX failed to break above key
resistance at 965 and remains in a downtrend. At best, the trend could
be flat, but poor relative strength over the last 5-6 days keeps the
bulls at bay. The index looks weaker now than it did in early Apr-02,
which marked the beginning of an extended decline. In Nov-01 and
Apr-02, SPX formed a double top and the second high equaled the first.
After the strong Oct-Dec advance, the index managed to test resistance
around 955, but fell short of the prior high (965). Similarly, SPX
advanced sharply in early January, but fell short of the prior
reaction high (955) and formed a bearish engulfing pattern two weeks
ago.
Looking at the pattern since Apr-02, the index declined sharply,
formed a large consolidation (775 – 965) and may be about to embark on
a continuation down. A break below 775 would be the final confirmation
and projections extend below 600 (965 – 775 = 190, 775 – 190 = 585 or
1175 – 775 = 400, 965 – 400 = 565). While the lower highs over the
last two months are negative, keep in mind that bullish consolidations
usually slope opposite the larger trend. A move below 870 would be
quite negative, but could also turn into a falling flag or sorts. As
long as it falls, we are wise to respect the bears. A move above 940
would signal a continuation of the prior advance. For now, the bulk of
the evidence reverted to the bear and the prospects are for at least
more correction if not another leg down.
***Dow Industrials*** On the weekly candle chart, the Dow met
resistance below its August high and declined sharply over the last
two weeks. The patterns are similar to those seen in the S&P 500 with
the 6-7 month trading range (9100-7500), bearish engulfings and 8 week
falling flag. With the larger trend still down and the failure to
break resistance at 9100, the Dow is on the defensive. The projections
are for a move to support at 7500. The alternative scenario would be a
falling flag with resistance at 8900. As long as the flag falls, I
would respect the bear and expect lower prices. Charts: monthly
candle - weekly candle – daily PnF - breadth
***A bull market*** The primary trend for gold is up and it remains
one of the few bull markets around. As the monthly charts shows,
bullion formed a HUGE 5-year base between 256 and 326. The pattern
also looks like a large double bottom or cup-and-handle. Anyway you
slice it, the next target zone is 400-420. The double bottom projects
a move to 400 and the Feb-96 high marks potential resistance at 420.
While there is more room on the monthly chart, the daily and weekly
charts are looking a bit extended. A correction back to
resistance-turned-support around 300 would be a gift opportunity. More
realistically, traders would have to wait for this move to end and
then project retracements (38-50%) to look for bullish reversals on
the daily chart.
***Penalized for hedging*** While ASA and NEM broke above their early
November highs in mid December, ABX is just now getting into the
action. The company has underperformed because of its hedged
portfolio – or so they say. With the big move over the last six days,
the stock broke above its mid December high on a closing basis and
exceeded its November high on an intraday basis. More importantly, the
move came on the highest volume since mid December. While the breakout
is technically bullish, risk in a long position would be to around
14.8. A more prudent approach would be to watch the stock closely and
perhaps use the 30min/60min charts to time an entry after a pullback.
The downside to this strategy is that there may not be a pullback and
the stock could quickly run to 18.5.
***Air Freight peaking at resistance*** The Dow Jones Air Freight
index met resistance at 425 for the second time in a year and could be
forming a double top. A double top would not be confirmed unless the
index declines below support around 367 – by that time it will be a
little late though. The index was a top performer until early October
and actually underperformed the S&P 500 over the last few months. The
recent reversal at resistance bodes ill and is confirmed by RSI, which
formed a large negative divergence and moved below 50. The initial
projection is for a move to around 370. Should the index break double
top support, the projection extends to around 310. Components include
ABF, FDX, EAGL, EXPD and UPS. Obviously FDX and UPS dominate the
group.
***Losing momentum ahead of the bowl*** The DJ Casino Index was
featured a few months ago after breaking rising wedge support (purple
trendlines) in October. The index recovered quite quickly, but failed
to partake in the Oct-Dec advance. Instead, the group traded flat and
formed a symmetrical triangle consolidation over the last few months.
The weak relative performance, which is noted by a negative divergence
in the price relative, bodes ill and a break below 200 would project a
move below the October low. RSI did not form a negative divergence,
but momentum failed to recover and recently moved below 50 (bearish).
The PAI also dipped below its signal line recently and the index
appears headed for a fall. Components include: AXR, GTK, HET, IGT,
MBG, PNK, PPE, STN and WMS. |
