***** Technical Analysis (for November 27)*****
A powerful rally drove the Dow towards 9000 as it closed near its highs of the session at 8931 and the Nasdaq and S&P 500 also made hefty gains. Despite the weakness on Tuesday, the dip-buyers came back in with conviction Wednesday, and on reasonably good volume considering it was the day before a major holiday. This action sets up a test of the prior highs of 9077 and 975 for the Dow and SPX.
The Nasdaq has already taken out its August high of 1426 by a wide margin as technology stocks have led this recent advance. The next resistance level is at the 200 dma of 1496 and then a prior high of 1568. It should be remembered that Dow Theory states that a price rally above a declining 200 dma is considered still bearish, and that we have done so a few times in this bear market, leading to a sharp decline.
The Nasdaq TRIN closed at a very positive .30, with a/d of 25/8, up/down volume of almost 10/1, on 1.7B shares. The rate of change and OBV improved to neutral while the others remain positive, including MACD, DMI, Money Flow and CCI. The RSI rose to 65.2, slightly lower than a few days ago despite the index making a new closing high.
The Nasdaq McClellan Oscillator rose to +43 but its 10% index is getting pretty extreme and a further advance could get it to become too high to sustain without at least a retracement. The weekly, daily and hourly stochastics are all over 94% and enjoying a stochastic pop.
The NYSE TRIN closed at a very positive .56, with outstanding breadth at 26/7, up/down volume 7/1, on 1.3B shares. The Dow weekly stochastic is 78% crossed up so it still has room to advance, while the dailies and hourlies are over 96%. The McClellan Oscillator rose to +45 as the NYSE stocks are playing catch up to the Nasdaq ones.
The VIX closed at 30.8, up from Tuesday's close by 2.1 points, an interesting divergence. It could mean that we are nearing a trend change because it typically would fall significantly on a day when the market rose sharply, but it might be a one-day anomaly. If it continues to diverge, then bulls should be cautious. The VXN declined to 47.4 from 48. The put/call ratio declined to .67 as expected and its 50 dma dropped to .83, and its MACD is still very low.
The bullish momentum remains intact and should continue into Friday or early next week. If we dip now, then we can rally again but if we move up without a hitch, then we should have a bigger retracement in the weeks to come.
Ultimately we should not only see the gap fill at Nasdaq 1419, but also the ones below and to fulfill the retest at 1108 next year. But for now, the market keeps making advances as it makes a topping formation which is lasting a fairly long time as indicated by a stochastic pop. But technically the weekly, monthly and quarterly charts still look bearish.
Bonds have weakened recently despite the 1/2 point Fed Funds rate cut as bond traders trade in anticipation of rate moves (buy the rumor, sell the news) and the stock market has been more attractive than the bond market in relative terms, fundamentally and technically.
I believe these are normal resets of extreme technical conditions and that the bear market will reassert itself in the months to come. We could see a top in the next week, and then a decline followed by another rally that either retests the highs or falls short of them, followed by a sharper decline in the first quarter of next year.
If one looks carefully at the fundamentals longer term, such as the Kondratieff cycle, price/earnings ratios, or market capitalization to GDP ratio, or Elliot Wave, there may not be much that can be done to prevent the continuation of the bear cycle.
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.
Dr.Bob's mission is to teach Technical Analysis and demonstrate a structured approach to Market Analysis, for position, swing, and daytrading.
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