***** Technical Analysis (for December 26)*****
The market signals are always mixed, however, with knowledge, experience, and a systematic way to interpret the technical data and charts, one can improve their trading success rates. The salient characteristic of a successful trader is to discern the best signals from the less important ones.
Currently there has been a weakening of bullish momentum from the rally that started from the lows of October 9, 2002. Very recently the Money Flow has turned negative, and for today, Thursday, its reading worsened. The Acc/Dist and Aroon remained very negative.
In contrast the DMI improved to almost neutral but the ADX is still very negative. The McClellan Oscillator, Williams%R, CCI, and the MACD improved slightly but most are still negative.
Sentiment indicators are mixed as well, with the VIX and VXN at low levels which is negative on an intermediate term timeframe but the VIX's MACD is neutral (uncrossed) and the VXN's MACD is positive as it is crossed down. The put/call ratio is still slightly negative and its MACD is definitely negative. Advisors are still about twice as bullish as bearish, which is interpreted as negative from a contrarian viewpoint. Sentiment indicators are not excellent timing tools but are part of any comprehensive technical analysis, known as sentiment analysis.
Today's Nasdaq TRIN closed at a mildly negative 1.29, with a/d of 17/15, up/down volume 6/7, indicating mild distribution, on only 815M shares. The RSI was little changed at 46.3. The McClellan Oscillator improved to -14 but the Summation Index declined to -98 and the 10% index is quite negative. The daily stochastic is 12% going down and the hourly is 13% crossed down but the "d" is high which allows for several more hours of weakness before getting extremely oversold.
The NYSE TRIN closed at a mildly negative 1.12, with a/d of 18/13 and up/down volume was 4/3 on light volume. The McClellan Oscillator rose to +1 as blue chip stocks are holding on.
The market has not had a strong trend in the month of December although the bias has been down. Institutional activity moves markets and they are defined as primarily mutual funds, pension funds, some hedge funds, professional trading rooms, and they can do derivatives and arbitrage-related trading. Public investors, or "retail investors" as they are referred to by Wall Streeters, may only represent about 10-15% of trading volume.
Thus the question is whether the institutions can engineer another rally or whether larger forces at work will determine the next major move. That is, can they manipulate the market to move up, or will the numerous problems in the financial markets and global economies result in much more supply (i.e. selling) than demand (i.e. buying).
The current technical data suggests strongly that the next major move will be down. The Nikkei has been very weak, trading near 8500, and the Hang Seng has also been weak, trading near 9500, while Germany's economy, which is the third largest in the world, is near recession.
The U.S. dollar, as measured by the March futures contract, has broken below support at 104, and that action has confirmed the likelihood that it is in the early stages of a bear market, which can have strong effect on the stock market and gold.
Retail sales growth has slowed and that could be another factor that the stock market is factoring in because consumer spending represents 2/3rds of the economy. All valuation models indicate that stock prices are 2-3X higher than they are really worth.
We can always speculate why we are in a bear market, but the reality is that we have not seen data that refutes the idea that the bear is alive and well, and will reassert itself in the months to come. The tape never lies. And while I do not have a crystal ball, it appears that the time for a serious decline is getting very close, perhaps starting within 2-3 days.
Dr.Bob's commentaries are not to be construed as recommendations to buy or sell stocks, options, or ETF's as Dr.Bob is not a Registered Investment Advisor. 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 interpretation.
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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