***** Technical Analysis (for November 1)*****
The markets were able to muster up another rally on Friday after appearing tired on Thursday though volume was moderate once again.
The Nasdaq was able to close above the 1350 resistance level by 10 points, which implies a run to or towards the 1426 top in August in the days to come. The TRIN was a very positive .31, with a/d of 2/1, up/down volume 6/1, on moderate volume of 1.8B shares. We shall see if the next up day can generate volume well over 2B shares.
The Nasdaq MACD, Williams%R, DMI (ADX), Money Flow, Acc/Dist, and Aroon remain positive while the rate of change is negative and the CCI continues to be neutral. The RSI rose to 63.2, a new recovery high.
The McClellan Oscillator rose to a new recent high at +60 and its 10% index is getting extreme now though the 5% index has more room to rise. The monthly and weekly stochastics are crossed up while the daily is overbought.
The NYSE TRIN closed at a mildly positive .85, with a/d of 23/9, up/down volume 3/1, on light volume of 1.4B shares. The McClellan Oscillator rose to +52, with its 10% index improving. The Dow's monthly stochastic is trying to cross up but has not done so yet while the weekly is crossed up and the daily is showing both k and d getting toppy for the near term.
The VIX/VXN dropped to 33.9/49.8, respectively and their MACDs are crossed down and low. The put/call ratio dropped to .71, with its 50 dma rising to .89.
From a fundamental view, the valuations are very high. The p/e ratio has been reported to be (vs. an average of 16-17) now while another measure is also indicating overvaluation, which is the entire stock market capitalization vs. the GDP (Gross Domestic Product). That latter ratio averages .58, and right now it is over 1.00, a bearish sign.
The Dow is set to take out the 10/21 high of 8547 while the Nasdaq is trying to test its August high of 1426 after taking out resistance of 1354. The question is whether this rally has legs and can last until late December/January, or if it will become one more technical rally that fails and makes at least a retest of the lows and possibly a new lower low.
If the overall volume does not increase, then the odds will greatly favor that this rally will indeed fail. Favorable seasonality can be a minor factor as well as a major one, and the current rally may be more of a result of the oversold condition reached in early October than a result of favorable seasonality, which does not work well in bear markets.
While the Nasdaq is leading this advance, it should be remembered that that index has a couple of gaps below, and may yet retest (at a minimum) its 1108 bottom in the months to come. The technical indicators are mainly positive now which implies we could have higher prices in the short term while the indicators wind down over the short-intermediate term, eventually bringing prices down significantly. Some bearish divergences are showing now, such as the rate of change, CCI, and overall volume.
Any sharp price move up could result in the indices becoming parabolic from their moving averages which could signal a near term top at least.
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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