***** Technical Analysis (for November 4)*****
The Nasdaq led a heavy volume rally today though the weak close gave mixed signals. In my intra-day TA Update, I mentioned that a strong finish (which was more probable than not) would portend further upside action instead of a top, but the market reversed late in the session.
The Nasdaq has been the strongest index by far which is not a good sign because it is more positive when they move up in equal strength. Finally we had heavy volume but we now need another heavy volume rally day to prevent a downdraft because the index closed at the open price instead of closing much higher and the gap up today could turn into an island gap reversal day if we gap down tomorrow.
The Nasdaq got parabolic mid-day and the volume actually declined in the last two hours, which is one reason why it sold off as buyers got overwhelmed by sellers.
If the Dow had closed strongly today, it would probably have made a run at 9000 or 9077 (the recent prior high) in the next week. Now it is unclear if that will occur and Tuesday's action could very well signal what the next major move will be. Even a run to 9000/9077 could be a major top unless we get the 4 days of heavy volume rally days that is a good bull signal.
For Monday, the Nasdaq gapped up from the high on Friday of 1360, so that should be watched carefully to see how the market reacts if it gets there today or tomorrow. It has gaps all the way down to 1162. The Nasdaq TRIN closed at a very positive .38, with a/d of 5/3, up/down volume 5/1, on heavy volume of 2.4B shares. The RSI rose to 66.9 and is nearing the overbought level of 70.
The Nasdaq McClellan Oscillator is +66, making a new recovery high, with an extreme reading for the 10% index. Sometimes these readings can go back and forth at extreme levels for a week or two while the index continues to rally, but it is usually a topping formation. The daily stochastics are very high and the hourlies are now crossed down.
The MACD, Williams%R, Money Flow, Acc/Dist and Aroon remain positive while the CCI improved to positive and the ROC remained negative. The index got to within 6 points of the prior high intra-day today, but then backed off. One rule of thumb is that unless the price rises above that high on the following day, it is likely to reverse, especially since we had a gap day today.
The NYSE TRIN closed at a positive .67, with a/d of 19/13, up/down volume 2/1, on moderate volume of 1.6B shares. The McClellan Oscillator rose to +55. The Dow took out the October 21 high of 8547 intra-day but the index couldn't hold most of the gains and closed at 8571.
It should be noted that the Nasdaq is on the verge of making a new high while the Dow and S&P 500 are not as close to doing the same. Strong accumulation is more evidenced by the Dow and S&P 500 leading than by Nasdaq ones as institutions focus more on blue chip stocks, and institutional trading is what really provides market trends.
The market is very overbought technically and could be forming a top here. Topping formations can last for weeks. Incremental selling can sometimes be a useful strategy if one believes the risk-reward ratio is worsening. We shall see if the market has a correction and then rallies again to try to retest these levels or if it will start to grind its way down right now.
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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