***** Technical Analysis (for October 10)*****
Another huge rally today raises the important question whether it is the beginning of a trend reversal or just another technical bounce or rally. One can only know in hindsight, however, there are certain signs to look for. The first sign is a follow-through to the upside for 3 more sessions as far as the market internals are concerned. The second sign is for the rally days to be on heavy volume. Finally you need to see the beginnings of a series of higher highs and higher lows.
Today the Nasdaq led the way as it was up 49 points, with a very strong TRIN of .23, a/d of 20/13, up/down volume 6/1, on moderate volume of 1.8B shares. The MACD, DMI (ADX), Money Flow, Acc/Dist and Aroon remain negative while the Williams%R and CCI improved to neutral, so it is too early to forecast a leg up. The RSI rose sharply to 42.4, up 10 points, which normally signals more upside action in the next few days.
The Dow and Nasdaq monthly stochastics reached the 0% level yesterday, Nasdaq McClellan Oscillator had reached -51 and its 10% index almost reached the extreme levels of late July, thus providing enough of an oversold condition to setup today's technical bounce. But many other indicators or indications were not at readings consisten with most bottoms.
The VIX declined to 46.3 while the VXN was almost unchanged at 62.8. The put/call ratio rose to .97, and its 50 dma rose to .86.
The market still has a lot to prove in order to signal a new uptrend of consequence. We shall see if we have a strong follow-through on Friday, but the odds are against it because we did not have the much-awaited capitulation beforehand.
Resistance has been broken at 7500 and 1160 on the Dow and Nasdaq, and the next levels are at 8000 and 1260. A retest of the Thursday lows may need to be tested in the next week or two if we do not obtain the strong follow-through over the next few days.
Dr.Bob's commentaries are not to be construed as recommendations to buy or sell stocks, options, or index vehicles. 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 or forecast.
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