***** Technical Analysis (for December 20)*****
"Quadruple witching" day on Wall Street resulted in a rally as mentioned was likely in yesterday's Technical Analysis column, and it was fairly impressive, especially for the Dow, which was up almost 150 points. Volume expanded as can be expected from a "witching" day, but unless heavy volume continues early next week and for several days in a row, it will ulimately fail. The odd slightly favor weakness early next week because the trend was down prior to an options expiration day with the "witching" day being up. But the day's technicals and market internals imply that we could carry over the rally into Monday.
The Nasdaq TRIN closed at a moderately positive .73, with a/d of 19/14, up/down volume of 2/1, indicating modest accumulation, on moderately heavy volume of 2.0B shares. The MACD, Williams%R, DMI (ADX), and Acc/Dist remain negative while the Money Flow became more negative for the first time in several weeks, and the Aroon finally worsened to negative after having been mostly positive for 2 months. The RSI rose to 45.2, a modest gain from 43.5, but still in negative territory.
There are only a few positive signs, such as the daily stochastics which rose to 9% crossed down but nearing a crossover to the upside and the hourlies which are 43% crossing and going up, signalling more upside early next possibly. The Nasdaq McClellan Oscillator rose to -27 from -39 and its 10% index remains below its 5% indes and the zero line but not as low as at prior bottoms. The Summation Index dropped to -43 from -16.
The NYSE TRIN closed at a positive .64, with a/d of 2/1, up/down volume was 3/1, indicating moderate accumulation, on moderately heavy volume of 1.7B shares. The Dow daily stochastic is 25% going sideways and the hourly was 87% crossed and going up, so it implies a little more upside too.
The VIX declined to 31.4 from 34.5, but its MACD remains crossed up, a bearish sign. The VXN declined slightly to 48.5 and its MACD is uncrossed and at a crossroads. The put/call ratio declined to .88 and is neutral to slightly negative. The advisors are about twice as bullish as bearish, a negative reading.
The bond market has been in a trading range after rallying strongly in the past couple of years but the fact that it has not broken down implies that lower interest rates may be occurring in the first quarter of next year as bonds rally once more. The US dollar has fallen below support of 104 and apparently has entered the next leg down which has bearish implications for the stock market in the longer term. Gold fell sharply today and probably needs to correct more and for a bit of time before resuming its up trend, after having become parabolic. So the stock market and gold market could decline in the next 1-2 weeks. The longer term bull market in gold also has bearish implications for the stock market.
The "Santa Claus" rally for Wall Street has not appeared in December despite many pundits forecasting it, and today's rally might lead to a modest rally which may end up not qualifying as a "Santa Claus" rally. As I mentioned in the past 3 weeks, this expected "Santa" rally was unlikely due to the technicals of the market and the fact we rallied into the early December time period with bearish divergences.
The Dow and SPX had an up week after two losing ones while the Nasdaq was flat for the week. It should be noted that the Dow and SPX continue to mark lower highs and lower lows, this up week notwithstanding. Without a rally taking out 9077, the Dow will suffer another downdraft in the weeks and months to come.
Resistance for the Dow is at 8600, 8770, and 9077. For the S&P 500 it appears at 910 and 965, and curiously enough, this index closed right at the prior support level of 895. The Nasdaq has a little resistance at 1420, 1480 and at 1521, and curiously this index closed at 1363 which is in the prior support area between 1360-1365.
The question now is whether the institutions can muster up a technical rally for 1-3 weeks or if it peter out in a day or two. In either case, it appears likely that any rally will only serve to reset the technical indicators and supply/demand balance, leading to another downdraft.
The big change in the Money Flow and Aroon bode badly for the Nasdaq in the weeks ahead. The Dow and blue chips have regained relative strength compared to the Nasdaq which implies the institutions have not given up yet so the patience of bears may be tested once again, but will probably be vindicated and rewarded within the next 2-3 weeks.
The technicals of the market along with the chart patterns makes me infer that the stock market will grind down once again in the months to come. Several very short term bounces and one or two rallies will occur along the way to a retest of the prior lows of Dow 7197, S&P 500 768, and Nasdaq 1108 (gaps at 1166 and 1221 will get filled).
Dr.Bob's commentaries are not to be construed as recommendations to buy or sell stocks, options, or ETF's. 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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