Market Direction Thoughts 6/27/04
Commentary on Previous Reports
My latest report was again slightly bearish, primarily because of the Bud Oscillator, but aided by what has so far been a fairly reliable set of VIX readings. $COMPQ rose about 2% for the week, while $SPX was essentially unchanged for the second consecutive week.
The biotech measures, $BTK and BBH, rose about 2.5% on average, performing generally in line with other tech sectors, but I wasn’t able to pick that up in the last report except to note that they looked better than other sectors. Energy-related sectors generally looked ready to take a breather, but rose in tandem with most other composites. $UDX fell slightly, but hasn’t yet reached my target of 88. Instead of stabilizing or falling, most tech sectors rose more than 2%, with IIH gaining nearly 7% on the week. Asian stocks did rather well, against my expectations. The bright spot in last week’s sector call was my inclination to short RKH and RTH, as both of them lost nearly 0.5%. Darts, not for the first time, would have outperformed my sector calls for this week.
Summary of The Week Just Ended
$COMPQ broke above prior resistance of 2025. SPX nudged above prior resistance at 1142, but ended the week with a very weak showing on Friday.
$COMPQ daily ORMA is at 76% and rising. Weekly ORMA is at 41% and rising (I incorrectly reported it at 48% last week when it was actually 30%).
$COMPQ P&F chart remains in X’s and above the bullish support line, so it still looks “safe”, but it’s nearer to resistance than to support:
stockcharts.com[PA][D][F1!3!1.5!!2!20]&pref=G
Daily Bud Oscillator is overbought, but isn’t yet screaming ‘sell’. Weekly Bud Oscillator reversed its warning signal of last week, but remains overbought.
$SPX daily ORMA is at 71% and falling, with weekly ORMA at 51% and rising. Daily Bud oscillator has moved from moderately risky to very risky. Weekly Bud oscillator is again flashing red, indicating that downside is probable.
P&F chart is still in X’s and on a buy signal:
stockcharts.com[PA][D][F1!3!1.5!!2!20]&pref=G
The highs established two weeks ago were broken by both $COMPQ and $SPX. Market Strength readings, except for a very slight retreat on Monday, rose strongly for the week, which serves to validate the penetration of resistance by both indices.
Commentary and Outlook:
Last week I mentioned that I expected resolution to the long period of uncertainty that we have experienced. Resolution came, I think, in the form of a market that became more overbought but penetrated resistance on rising Market Strength. This means that I continue to expect a pullback, but that I would be a buyer on the retreat. Weekly Bud Oscillator readings have roughly a 4-6 week window of influence (suggesting that one should buy around late July or early August), while Market Strength and Weakness readings are fairly short-term, suggesting a decline of perhaps 1 1/2 weeks or less.
Market Strength is supposed to weaken as the indices approach resistance, just as Market Weakness weakens as indices approach support. So the fact that Market Strength is rising as the market struggles with resistance means that the odds of making it through, and trending above, resistance is reasonably high (but not necessarily immediate). Market strength is higher now than at any time since mid-February.
$COMPQ has good support at 1965 and stronger support at 1875, with resistance at 2050-2060, and again at 2075. $SPX has support at 1115 and again at 1076-1080, with stair-step resistance from 1146 up to 1160. Beyond that, there is very strong resistance at 1175 going back to December of 2001. The prospect of a major breakout on $SPX will come with some additional supporting information, but it’s not such a remote possibility today as it was a week ago.
P&F BP’s
$BPINDU is in Bear Confirmed status and looks quite ill:
stockcharts.com[PA][D][F1!3!!!2!20]&pref=G
$BPNDX is in Bull Alert status:
stockcharts.com[PA][D][F1!3!!!2!20]&pref=G
VIX
- Daily: ORMA remains oversold (market overbought), but rising slightly, which should give bulls reason to pause. Bud Oscillator shows the VIX rising from here, probably in very short order.
- Weekly: ORMA oscillator continues to decline, and can easily decline further (meaning market can rise). Weekly view of the Bud oscillator continues to telegraph a reversal, which means that the markets head down from here.
Daily VIX indicators are clearly bearish, while weekly indicators are somewhat less so.
Sector Watch:
I don’t like $BKH, $DRG, RKH, or RTH at this time. $SPX looks shaky. However, $BTK and BBH look attractive. IIH has some room to run. Energy sector is not the place for new funds at this time. $SOX isn’t clear, but upside looks more likely than downside.
CALM can rise further, but I think at this time it will follow the market. HLSH is up against serious resistance, so I would wait for a pullback to enter, or take profits here in anticipation of a pullback. A retreat of a month or two could set up a very nice cup and handle.
Definitions
ORMA – A home-grown oscillator. It’s similar to %D of a 14, 3, 5 stochastic indicator. It’s more responsive than predictive, faster than %D yet with fewer false signals.
Bud oscillator – A home-brewed oscillator that often has some predictive value.
Market Strength/Bull Strength – A measure of bullish influence in the market, akin to new highs.
Market Weakness/Bear Strength – A measure of bearish influence in the market, akin to new lows. Usually, but not always, moves inversely to Market Strength.
Short Term: a few days or a week.
Medium Term: several weeks.
Long Term: several months.
Disclaimer
Everything here is my own opinion only, and it’s worth what you paid for it. I’ve been known to be wrong at times. And I’ve been known to be right at least half as often as I’ve been wrong, though I haven’t kept records to support that statement. |
