Market overview
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Following is Arthur Hill's (TDTrader.com) overview and swing trade summary as of preopen this morning (which my thanks to him), indicating NDX up in short and medium timeframes, SPX and Dow up in short-term, not yet in medium term:
***Market Overview***
Low volume and weak breadth continue to plague the advances. Even
though selling pressure remains light, buying pressure is even
lighter. Falling flags were noted yesterday and the major indices
extended late gains (Wednesday) with a relatively strong open on
Thursday. However, volume during the first 30min was light and
suggested that the gains would not hold. The market peaked within
30min and the fade began immediately afterwards. The first and last
hours typically witness the highest volume of the day. As such, first
30min volume should be compared against first 30min volume on prior
days. Breadth, on the otherhand, can be compared across the board
intraday. A strong opening move should be accompanied by strong AD
Volume Net% and AD Net% (or a strong AD Volume Ratio or AD Ratio). Up
volume should swamp down volume (3:1) and advances should exceed
decliners at least 2:1. The flags remain (SPX/INDU) and it would not
take much for another breakout. NDX formed a pennant and continues to
show good relative strength. The key to successful breakouts resides
with volume and breadth. Price action is important, but we need to see
some backup to insure sustainability.
***NDX Long-Lerm***
No change: On the weekly candle chart, NDX formed a small white
candlestick last week to show some signs of firming and remains in
corrective mode overall. The Oct-Dec advance broke above the August
high and forged a new reaction high, but met resistance near the
Dec-00 trendline. Two bearish engulfing patterns formed (gray arrows)
immediately after each breakout attempt and the decline over the last
2-3 months looks like a falling flag. Moreover, the pattern over the
last five weeks is quite similar to that seen in December (long black
candlestick, three short down weeks and a small white candlestick).
With the index near the lower trendline of the falling flag, it is
well positioned to forge an important low. There are two levels to
watch for bullish confirmation: a break above 1000 would be the early
bird signal and a break above 1105 would signal a continuation of the
Oct-Dec advance.
***NDX Medium-Term***
Position traders: On the daily candle chart, NDX finished just above
1000 for the third day. After the long white candlestick and breakout
on Tuesday (green arrow), the index consolidated the last two days
with two small black candlesticks. A consolidation after an advance is
normal, but the index must now move above 1015 to signal a
continuation higher and solidify the breakout. Further weakness below
1000 would open the door to a failed breakout (worst case) and at
least a pullback (best case).
The breakout at 1000 occurred on low volume and the consolidation
features low volume as well. In addition, participation in the advance
has been rather narrow with AD Net% for the Nasdaq Composite
registering +23% on Friday and +33% on Tuesday. These readings reflect
modest participation among the masses, not the stuff required for a
major liftoff. There are two green arrows on the chart: 6-Jan and
18-Feb. The first breakout occurred on average volume and failed to
hold. Unless volume comes into the picture, the second breakout is
doomed to fail.
Current Position/Action: No position and no change. The low volume
breakout and narrowness of the advance (weak AD Net% for the Nasdaq
Composite) argue for caution. My best guess is that further correction
or consolidation may be required before the advance resumes. A
pullback to around 976 would retrace 50% of the prior advance (939 to
1015) and there is resistance-turned-support around 980. There are two
options: either go long on a continuation breakout at 1015 (NDX 1016
with a stop-loss below 995) or hold out for a pullback. I would
initiate a small position on a breakout and look to add at a later
date.
Medium-term trend: Up
Latest Signal: Gap and breakout at 1000 (18-Feb)
KEY Support: 950 Potential Resistance: 1040 (gray circle)
***NDX Short-Term***
Swing traders: On the 30min candle chart, NDX formed a falling flag
on Wednesday and a pennant on Thursday. Both are continuation patterns
and the flag breakout failed. With the prior move up, the odds still
favor a continuation higher, but confirmation with a breakout is
required, especially considering the low volume on the prior advance
and the failed flag breakout. A move above 1015 would be bullish and
signal a continuation higher, while a move below 995 would be bearish
and signal a reversal to the downside. Also note that 15-period RSI is
flirting with 50 and would not take much to move below 50 and turn
momentum bearish. The PAI declined during the trading range and this
suggests distribution within.
On the 10min candle chart, NDX opened with a gap up that quickly faded
with a decline back to 1000. The first 15-30min of trading are
dangerous periods, especially when there is a gap in the direction of
the prior move. The index broke above flag resistance late Wednesday
and continued higher in the first 15min on Thursday. This residual
continuation subsided and the “real” tone for the day took control
after the first 30min. Buying or selling an opening gap (or in the
first 10min of trading) requires a tight stop-loss. Either the gap
holds and continues or the gap fails and folds. This gap failed and
folded, which bodes ill for a breakout at 1015.
Current Position/Action: Short on the move below 1005 (NDX 1003 or QQQ
24.85) on 19-Feb. A smaller trading range took shape within the
pennant and the key levels to watch are 1009 and 999. A break above
1009 would be bullish and could be used to exit shorts and/or go long
(NDX 1016 or QQQ 25.3). A break below 999 would be bearish and could
be used to initiate or add-to shorts (NDX 994 or QQQ 24.7). With the
boundaries at 1015 and 995, I have elected to initiate positions just
above and below in an attempt to avoid the whip.
Latest Signal: Gap up and breakout at 995-1000 on 18-Feb
Short-term Trend: Up
KEY Support: 995 Potential Resistance: 1015
***SPX Long-Term***
No change: On the weekly candle chart SPX declined from 1174 to 776
and has since consolidated over the last few months. Should a reaction
low form around 806, the pattern could turn into a symmetrical
triangle. These are usually continuation patterns, but can also signal
a reversal. A move above the upper trendline (940) would signal a
bullish reversal and a move below 800 a bearish continuation. As long
as the index remains in the consolidation, the trend is neutral at
best and bearish at worst (based on the prior decline). A higher low
at 806 would be positive, but this must be followed by a breakout at
940 to turn the long-term trend bullish.
***SPX Medium-term***
Position Traders: On the daily candle chart, SPX broke above
support-turned-resistance (840) on Tuesday, but failed to hold this
break and closed below 840 yesterday. The index remains weaker than
the Nasdaq as non-techs (notably finance and healthcare) continue to
lead the way lower. Outside of information technology, finance and
healthcare are the two biggest sectors in the S&P 500. Even though
tech held up relatively well, weakness in these two key sectors has
kept the S&P 500 down. With the potential reaction high around 853, I
drew a light gray trendline that may evolve into a falling wedge. As
long as the wedge falls, it is wise to respect the bears. A move above
the upper trendline and prior reaction high at 853 would be quite
positive. Even though key resistance resides at 870, such a move on
expanding volume (1.6 billion NYSE) and broad participation (NYSE AD
Net% above +40%) would be a good signal. Barring this signal, the
current trend is down and the odds favor at least a support test
around 810-820.
Current Position/Action: No position. The morning pop (first 20min)
quickly faded and the index closed below 838. Long positions initiated
on the pop got the whipsaw and should have been closed by the end of
the day for a small loss. A falling flag formed on the 60min chart and
a move above 849 would signal a continuation higher. Yesterday’s
breakout lacked volume and breadth in the first 30min, which is the
only way to judge the robustness of an early breakout. (Note: SPY
volume in the first 30min was the lowest since 7-Jan). A move above
850 would be positive, but must come with expanding volume and broad
participation.
Latest Signal: Resistance-turned-support break at 908 (17-Jan)
Medium-term trend: Down
Potential Support: 800 KEY Resistance: 870
***SPX Short-Term***
Swing traders: On the 30min candle chart, the flag trendlines have
been drawn a bit tighter with the upper trendline cutting through the
morning high. The index declined in the final 30min and this helps to
validate the trendline with a late reaction high. Resistance at 843
has been extended and the index remains in corrective mode as long as
this level holds. A move above 843 would signal a continuation higher,
but should be accompanied by expanding volume and good breadth. As
long as the flag falls (upper trendline holds) the projections are for
further weakness towards 830. RSI moved below 50 and momentum is
bearish. A breakout at 843 should be confirmed with RSI moving above
50.
On the 10min candle chart, SPX gapped up on the open, but this
extension faded after 15min and the index declined to support around
839. The flag breakout late Wednesday was bullish and residual buying
pressure carried over on Thursday morning. Gaps in the direction of
the prior move are prone to a fade, which is exactly what happen on
Thursday morning. The lower high (below 853) keeps the falling flag
intact.
Current Position/Action: No position. Yesterday’s guidelines were too
tight and produced a whipsaw (bad trade). Those not acting in the
first 20min avoided the whipsaw and remain with shorts. Resistance at
843 (SPY 85) is the key level to watch. A move above on expanding
volume and good breadth would be bullish. This could be used to exit
shorts and/or initiate longs with a stop-loss just below the prior
reaction low. Without a breakout, the index is likely to whittle its
way down towards 830. Selling pressure remains modest, but buying
pressure is even more modest.
Latest Signal: Gap up and breakout at 843
Short-term Trend: Up
KEY Support: 830 Potential Resistance: 853
***Dow Industrials***
On the daily candle chart, the Dow continues to flirt with
support-turned-resistance around 7940 as it closed at 7914 yesterday.
The move (Tuesday) back above the support break was positive, but not
enough to turn the medium-term trend bullish. Should a reaction high
form around 8075, a falling wedge may evolve. I would like to see
further weakness to around 7800 before considering this a robust
reaction high (and trendline/falling wedge). The decline over the last
two days looks like a consolidation, but the average needs to move
above 8076 to signal a continuation higher and assault on key
resistance at 8160. As usual, expanding volume and good breadth are
required for confirmation. Of note, the Price/Volume Oscillator (PVO)
formed a nice positive divergence and moved above its signal line.
On the 30min candle chart, the Dow formed a falling flag over the last
three days. The breakout yesterday morning looked like a continuation
move, but lacked volume and failed in the first 30min. 8000 remains an
important resistance level, but I would focus on the upper trendline
of the flag and reaction high at 7961. A move above 7965 would signal
a continuation higher and open the door to resistance breaks at 8000
and 8076. Barring such a break, the odds favor a continuation lower
towards support around 7850.
graphs at link
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