***** Technical Analysis (for December 13)*****
Topping formations usually take several weeks to complete, and the odds are that the major indices have topped out. While I had believed a top was in during the last two weeks, it is almost impossible to pinpoint exactly the beginning of the downtrend from the highs. Nevertheless, it would take a herculean effort by traders or institutions to reverse the momentum back up in any meaningful way.
What has occurred appears to be another sharp bear market rally from the lows of October 9, ending in another leg down. More evidence to support that will be a break below Dow 8250 and Nasdaq 1320, which are levels that support may come in, especially in light of the likelihood that the "d" stochastics on the dailies will reach the "k" stocahstics by then. For now, the market has suffered its second week of declines, which was implied by the outside week to the downside the week before.
The Nasdaq TRIN closed at a very negative 3.10, with a/d of 5/11, but up/down volume was terrible at 1/8, on light volume of 1.4B shares, but don't be fooled by the light volume down days, which can be a harbinger of more sharply down days in a bear market. The MACD, rate of change, Williams%R, DMI (ADX), CCI and Acc/Dist are all negative, while the Money Flow worsened to neutral and the Aroon weakened too but is still positive. The RSI fell to 44.2 and appears to be in a new downtrend.
The Nasdaq McClellan Oscillator declined to -33 from -15, and its 10% index is below the zero line by quite a bit. The daily stochastic "k" is at zero but the "d" still has room to drop, so the low is not yet in. The a/d line is in a definite downtrend again.
The NYSE TRIN closed at a negative 1.36, with a/d of 1/2, up/down volume 1/3, on light volume of 1.25B shares. The McClellan Oscillator dropped to -12 after having fought to stay above zero.
The VIX rose to 32 while the VXN remained right at 51, but their MACDs are crossed up, a negative sign. The put/call ratio rose to .87 but it too is giving a bearish signal.
The Dow and S&P 500 never did reach their 200 daily moving averages during this rally and the Nasdaq got there but did not close above it, so Dow Theory says we are still in a bear market. The Dow resistance levels are at 8600, 8770 and 9077, and they are formidable. The SPX has dropped below support at 895 and should reach 860 or so in the near future before support comes in.
The US dollar has weakened in the last few weeks after having steaded itself after dropping sharply a few months ago and topping out in February. There are rumors that many foreigners selling the dollar and buying gold in anticipation of global problems, including another terrorist attack on the US.
Spot gold has risen sharply in the past few days and it is getting parabolic for the near term so there should be profit-taking pullbacks on Monday and/or Tuesday, but the intermediate term appears bullish. Unhedged gold stocks have performed well recently and during the last 1 1/2 year bull market in gold from the $265/oz level.
Spot gold has some resistance at $339/oz and support at $329/oz and at $322-323/oz. But global and news events could change all those resistance levels. The gold trend may be saying that there are troubles ahead politically or economically. If so, that will be confirmed by a declining stock market as well. The odds still favor a retest of the lows next year.
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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