***** Technical Analysis (for November 6)*****
The Feds surprised market watchers with a 1/2 point cut in the federal funds rate as they try to stave off another economic downturn. This is considered good news for the stock market, along with the Republican election victories in the Senate and House. However, the reality is that the market will tell us what effect these two events will have, and in the meantime, the technicals and fundamentals for the market are still bearish.
The market internals were positive prior to the FOMC announcement, especially the up/down volume, which indicated modest accumulation and implied the market could close firmly, which occurred.
The Nasdaq still has a gap at 1360 and many below that level, including one as low as 1162. For Wednesday, the index's TRIN was .46, with a/d of 5/3, up/down volume 7/2, on moderately heavy volume of 2.2B shares. Now we shall see if we get follow-through with another heavy volume rally day. If not, then this rally should at least see a correction back down to retrace the gains.
The Nasdaq McClellan Oscillator rose to +64 while the 10% index remains positive. The Summation Index is at -176 and is threatening to turn positive. The daily stochastics remain very high. The MACD, CCI, Money Flow, Acc/Dist, Aroon and Williams%R remain positive while the ROC remains negative. The RSI is getting extreme at 69.
The NYSE TRIN closed at a positive .70, with a/d of 2/1, up/down volume 3/1, on only 1.6B shares, which is moderate and less impressive than that of the Nasdaq. The daily stochastic is extremely overbought. The McClellan Oscillator is at +61.
The VIX/VXN were little changed at 34 and 50, but their MACDs continue to signal a warning for bulls. The put/call ratio dropped to .67 and its MACD continues to give a bearish signal. Advisors are much more bullish than bearish according to Investors Intelligence.
The question is whether the institutions will interpret the 1/2 point cut as a reason to accumulate or distribute stock.
At this point, it would take serious institutional buying to prevent a substantial drop in equity prices according to my interpretation of the technical indicators and charts.
While one would think that there should be some euphoria on Wall Street as a result of the large cut and the Republicans taking over Congress, one should utilize a structured or comprehensive market analysis approach which factors in news but doesn't overemphasize its importance.
Always let the market tell you what the trend is and what types of trading strategies will be most profitable. Technically it would appear that the risk-reward ratio favors selling, not buying, for swing and position traders right now, in my humble opinion. That opinion could change if the technicals change.
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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