***** Technical Analysis (for December 3)*****
The last two times the Nasdaq McClellan Oscillator fell sharply to the 0 or +2 level, it was able to reverse back up as dip-buyers came back in. The Nasdaq oscillator reading today is +6, down from +30, and the NYSE oscillator reading is +18. We shall see if the breadth momentum on Wednesday and/or Thursday can improve to move this back up, or if it continues to weaken and drop below the zero line.
The Dow and S&P 500 are at risk of forming a double top at 9043/9077 and 954/965 as is the NYSE a/d line. Unless we get a good rally very soon to take out those highs, we will have a lower high, and perhaps will be starting a series of lower highs.
In my updates I have been interpreting the technical data as implying that we have been in a topping formation for the past couple of weeks, and we are in danger of that currently. While we won't go straight down, there is an increasing risk that this rally has made a top and is over and a new downdraft is underway, with brief technical bounces to reset the supply/demand balance and the indicators as we grind down.
Topping formations are complex and take weeks if not months to finish and thus we could get another rally if the institutions decide to prop up the market once more. But unless the overall volume improves and the bearish divergences disappear, it will fail miserably in December or January.
For Tuesday, the Nasdaq suffered moderate distribution as the a/d was 1/2, but the up/down volume was 1/6, on 1.65B shares. The TRIN was a negative 2.42. The MACD worsened to neutral as did the Williams%R, CCI, and Acc/Dist. The RSI retreated to 57.5 and it would be very hard-pressed to reach that 70 level and instead could drop below the neutral 50 reading in the next few days. Stochastics are coming down on the dailies and hourlies while the weeklies are still crossed up.
The NYSE TRIN was a very negative 2.20, with a/d of 3/5, up/down volume 3/11, indicating modest distribution, on 1.4B shares. The Dow daily stochastic is at 59% crossed down.
As mentioned for several days and a couple of weeks now, the sentiment indicators are bearish on balance and from a contrarian viewpoint. The VIX, VXN, their MACDs, put/call ratio, and surveys of investment advisors, are all giving negative readings.
Could we have an explosion to the upside one more time? Of course, and it would probably fail.
Spot gold rose sharply today as traders seem to expect more global turmoil, a weakening dollar, and stocks to turn back down soon. Gold may retest the $325 level in the next few days and even if it were to pause at current levels or slightly below, such as at $318-320, it now does not appear that it will fall apart to the $310 level any time soon. Stochastic-wise, it does not seem to want to get extremely oversold but rallies after getting only moderately oversold.
I am skeptical that we will have a sharp selloff immediately and that Wall Streeters may yet be able to get another bounce Wednesday or Thursday, but then stocks should head lower next week. Support for the Nasdaq, Dow and SPX appear to be at 1419 (gap), 8600, and 895, respectively. Resistance is at 1520, 9050, and 960, but the odds have improved that we won't get there on any bounces. Instead, we may get a series of lower highs and lower lows.
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.
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