***** Technical Analysis (for October 1)*****
The huge rally today might be another "1-2 day wonder" because it did not occur on heavy volume. Many of these sharp bounces have occurred in the 2 1/2 year bear market and fewer 1-3 month technical rallies have occurred, so this is not likely to be a 2-8 week rally but rather a few days at best. To prove me wrong, we will need to see strong follow-through not just for tomorrow but for 3-4 days in a row and on heavier volume.
The Dow is approaching the 8000 resistance level again and it needs to close well above it to provide some evidence that this rally can have legs. The NYSE TRIN closed at a positive .56, while a/d was 11/5, up/down volume was 4/1, indicating moderately strong accumulation, but it was on only 1.7B shares. I don't remember the last time I saw a 4 1/2% gain on the Dow (which is extreme) on such light volume.
The NYSE McClellan Oscillator rose to +1 and its 10% index is now above the 5% one but it is still below the zero line. The Dow monthly stochastic is now 12% and going up but still crossed down, weekly is 16% crossed down, the daily is 36% going/crossed up, and the hourly is 88% going up.
The Nasdaq more than filled the gap at 1198 as it was pulled up by the Dow and S&P 500 which were relatively stronger than the Nasdaq all morning. The TRIN was a very positive .41, with a/d of 9/8 which is unimpressive for a 4% gain, up/down volume was more positive at 3/1, but volume was only 1.7B shares.
The Nasdaq MACD improved but is still slightly negative while the Williams%R and CCI improved to neutral. The DMI (ADX), Money Flow, and Acc/Dist improved but are still negative and the Aroon is solidly negative, so it is too soon to be turning bullish if one is to interpret these indications. The RSI rose sharply to 43.1.
The Nasdaq McClellan Oscillator rose to -8 while its 10% index remains below the 5% one. We shall see if the oscillator can not only turn positive but show strong momentum by rising to the +40 level and on heavy volume on the index. Otherwise, this may end up being another false rally, leading to a new lower low.
The VIX/VXN declined to 40.1/57.2. The put/call ratio declined to .87 and the investment advisors are 42% bullish vs. 34% bearish, which is a negative reading.
The rally today was not surprising after Monday's late rally but the strength of it was. There is strong underlying liquidity and demand for stocks but it is tempered by a lack of conviction by the institutions. And we all know that the institutional decisions to accumulate or distribute stock is the primary mover to these markets.
We shall see if the tax-related selling by mutual funds is about over or if they will distribute stock once again. Technically the market has a lot to prove to indicate that a final bottom has been put in, and to this point, it has not been proven. One can only tell in hindsight but there are some strong signs of a tradeable bottom, such as selling climaxes/capitulation or multiple bottom reversal formations and bullish divergences.
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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