***** Technical Analysis (for January 6)*****
This week started out strongly as last week's bullish engulfing stick would imply. Before the bulls get too encouraged, the overall volume was once again weak as it was during last Thursday's sharp rally day.
For Monday, the Nasdaq rallied to close at the resistance area of 1421 as did the Dow at 8773, interestingly enough, so the inference is that they will surpass it on Tuesday. The question is whether they can reach their next resistance levels of 9043-9077 and 1521, respectively.
The market may be rallying from the ISM report last Thursday and the upcoming Bush stimulus package, but the institutions have not been buying heavily so far. Will the "buy the rumor, sell the news" adage prove out here?
There is always the possibility that the volume will pick up substantially as we go along, but until it actually does, the light volume rallies have to be seen as a form of bearish divergence.
The Nasdaq TRIN closed at a very positive .35, with a/d of 2/1, up/down volume 5/1, on only 1.6B shares, which is below the average of 1.8B shares in recent months. Light volume is below 1.8B, while moderate is 1.8-2.0B and heavy is over 2.0B shares, on this index.
The Nasdaq MACD, Williams%R, CCI and Acc/Dist improved to positive while the DMI remained positive and the Money Flow improved to neutral. The Aroon remained negative and the RSI rose to a positive 57.7 reading.
The Nasdaq McClellan Oscillator rose to +18 and its 10% index is now above the zero line as welll as the 5% one. The weekly stochastic is 79% crossed up while the hourly is 92% going sideways as its "d" is high, too.
The NYSE TRIN closed at a positive .69, with a/d of 25/8, up/down volume 4/1, on light volume of 1.4B shares. The McClellan Oscillator rose sharply to +46 and is nearing an extreme level which is around +50-+60. The 10% index is very positive but also nearing an extreme level.
The VIX was unchanged at a low level of 27.4 and its MACD is crossed down, a positive sign. The VXN dropped to 43.4 and its MACD is also crossed down, even more so than the VIX, but both are nearing extreme low levels. The put/call ratio declined to .67 and its MACD is giving a negative reading. The Investors Intelligence survey shows bullish advisors at 48% and bearish ones at 25%, a bearish reading from a contrarian view.
The strong close on Monday provides a probability that a positive opening and day could occur, with most of that depending on the market internals, especially the up/down volume indications. If it reverses back down, then it will need to come back up by the close or by Wednesday, in order to reassert bullish momentum to make this rally last at least 1-2 weeks.
The daily charts have a short-term higher bottom which will be confirmed only by a higher high on the major indices. Thus, the Dow needs to rise above 9043 and 9077 while the S&P 500 needs to rise above 954 and 965 because a failure to do so should result in a major decline.
When the market had rallied from the October 9 lows to the 9077 and 1521 levels for the Dow and Nasdaq and then came down to 8800 and just below 1500, I expressed the idea that the next major move of 500/100 and 1,000/200 points for the Dow and Nasdaq, respectively, would likely be down. The Dow did indeed drop 500 points as did the Nasdaq drop over 100 points, but will they drop 1,000 and 200 points from the current levels, or will they go up that much?
It will be the former unless the volume increases significantly in the next few days on rally days. Also, if bearish divergences show up again as they did in late November and early December, that will also increase the odds for a big decline starting shortly.
The bonds, oil, and gold markets are stalling out here and may be due for a correction now. It does sometimes occur that stocks and gold move in the same direction as they have in the past several days and during some technical rallies in stocks. Gold traded above 355 resistance today by 2 dollars and then closed near the lows of the session, a near term bearish action, so more downside is possible in the near term.
If stocks fail to increase in volume on rallies, then stocks may join gold stocks in declining in the near future, possibly starting this week.
Dr.Bob's commentaries are not to be construed as recommendations to buy or sell stocks, options, or ETF's as Dr.Bob is not a Registered Investment Advisor. Information and data provided here is believed to be reliable but cannot be guaranteed to be accurate. Always do your own research and due diligence before investing or trading. Remember that Technical Analysis can change by the day, and as such, one day's TA may not be the next day's TA interpretation.
Dr.Bob's mission is to teach Technical Analysis and demonstrate a structured approach to Market Analysis, for position and swingtrading.
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