THE MARKET:
The late burst of energy brought the indices back up to flat as word hit the Fed reinserted the line that inflation prospects remain contained. Basically that brought the statement almost back to where it was though as discussed above, still a bit more hawkish. Thus we don't see that as providing any lasting catalyst. The market is trending lower under this language in part because of uncertainty with respect to how far the Fed will go; that was not cleared up Tuesday, and thus we can't really expect this statement to change the market character.
Now the market has been trying to make a turn with the back and forth volume fight last week, action more typically found at the end of a selling bout. In response SP500 has rallied up to the neckline of its head and shoulders base (1164), trying to break through. Other indices have tried to form some short double bottoms similar to SP500. As of yet they are unresolved, and we still think they are too short to provide a true bottom; some solid upside yet, but a long term bottom is not likely off of these.
NASDAQ looks questionable. It too is trying a short double bottom, but it is also still locked in its downtrend below the 18 day EMA (1944) since breaking lower out of its January to early March trading range. Downtrends that follow the 10 or 18 day EMA are pretty entrenched. NASDAQ has to show something here to the upside.
Indeed, starting Wednesday all of the indices will be on the clock to show a follow through session, i.e. a high volume upside move with strong price gains and breadth in the 2:1 or better (preferably better) range. This time we need to see it from more than just SP600. SP500 is the logical choice given it has rallied back up to key resistance. It could very well struggle a bit here and then give a follow through. That remains to be seen but we are keeping a close eye on NASDAQ; as noted it has the look of a continuing downtrend that is ready to continue.
MARKET SENTIMENT
Volatility gapped sharply higher on the open, back up to 17.89. That did not hold for long as VIX turned over and dropped over 3 sticks.
VIX: 14.53; -0.59
VXN: 20.14; -0.66
VXO: 14.62; +0.18
Put/Call Ratio (CBOE): 0.85; -0.11
NASDAQ
NASDAQ tapped the 18 day EMA on the high and fell back below the 10 day EMA. But for a late bounce of about 5 points the close would have been a really weak doji.
Stats: +4.42 points (+0.23%) to close at 1933.07
Volume: 1.881B (+17.64%). Higher, slightly above average volume as NASDAQ rallied to tap the 18 day EMA and fell back. Kind of a hard session to read given the FOMC meeting and the program trading afterwards, but you still have to see the bigger picture: downtrending, failing at near resistance on rising volume.
Up Volume: 1.148B (+281M)
Down Volume: 709M (+30M)
A/D and Hi/Lo: Decliners led 1.08 to 1. Pretty flat, matching the action.
Previous Session: Advancers led 1.19 to 1
New Highs: 41 (+12)
New Lows: 126 (-14)
The Chart: The Chart: investmenthouse.com^ixq.html
Rallied to the 18 day EMA (1944) on the high and then faded on rising, slightly above average volume. NASDAQ is struggling at key resistance in its downtrend that became established after the March breakdown from the lateral consolidation from late January to early March. It is trying to set up a double bottom and rebound similar to SP500 with last week's undercut of the 1900 level and intraday reversal. The break above the 18 day EMA will be a key move if it can do it. Tuesday it had the look of an index ready to resume the downtrend. We have to see how the late bounce on the Fed correction plays out, but we are not counting on it.
NASDAQ 100 demonstrated similar action as it too tapped the 18 day EMA (1436) and faded on that rising volume. It is in a downtrend and trying to set up for another run higher, but has to clear the near resistance.
SOX tapped the 10 day EMA again on the high and closed flat. It is trading, on the close, in a narrow range, holding above its trading range low at 380 as the 10 day EMA moves down on top of it. Trending lower, trying to hold its trading range as well; a resolution is coming and unless the overall market breaks higher, it is looking at breaking below its trading range.
SP500/NYSE
SP500 rallied above the neckline in its breakdown from the head and shoulders pattern, but it could not hold the move after the FOMC announcement. Key area that holds the key to the next move.
Stats: -0.99 points (-0.09%) to close at 1161.17
NYSE Volume: 1.671B (+6.82%). Volume was up as SP500 churned at resistance (no real gain on higher volume after a move up). The volume was skewed by the FOMC decision, and the volume last week grew on the upside. There has been some accumulation, but it will have to show a breakout in the form of a follow through.
Up Volume: 1.013B (-278M)
Down Volume: 1.13B (+492M). Dead heat.
A/D and Hi/Lo: Decliners led 1.04 to 1. A dead heat as well. The NYSE indices are preparing for a move right at resistance.
Previous Session: Advancers led 1.86 to 1
New Highs: 50 (-19)
New Lows: 48 (-3)
The Chart: investmenthouse.com^spx.html
SP500 moved up through 1164, the neckline of the breakdown from the head and shoulders pattern. The breakdown occurred just three weeks back in that heavy volume break lower, and SP500 has fought its way back up to this level. As noted, there was some accumulation volume on the way back up, giving the move some strength a typical relief bounce does not have. With the Friday rebound on strong volume SP500 is now in position to provide a follow through move; what better one than to break through a key level with strength? We don't think it would do it Wednesday, but instead will test back toward the 200 day SMA (1155) and even undercut it some before making the rebound. SP500 is one of the best positions to make such a move, but as with any market under distress it will have to show us the breakout move.
The small cap SP600 broke through its 10 day EMA (307.19) intraday but it closed back lower once more as it did in late March when it tried to move past that level but failed at the 18 day EMA (309.80). It closed just below its 200 day SMA (306.33), but without any real breakdown. SP600 made its own double bottom formation, a similar pattern in the indices of late, but it is also still in its downtrend below the 10 and 18 day EMA similar to NASDAQ.
DJ30
Big doji at the 18 day EMA (10,249) as the blue chips tried to move past this near term resistance that stalled a bounce off the 200 day SMA (10,376) back in early April. As noted before, a weak index or stock will stall at the 10 or 18 day EMA if it is going to continue its downtrend. Nonetheless, DJ30 is just a short trip to the 200 day that is coincident with the bottom of the late March/early April consolidation attempt. If it does make it that far that may be all she wrote before another test lower. That would set up a better double bottom: another couple of days to the 200 day and then a week or so back down to 10,000.
Stats: +5.25 points (+0.05%) to close at 10256.95
Volume: 277 million shares Tuesday, back up to average, versus 239 million shares Monday.
The chart: investmenthouse.com^dji.html |
