***** Technical Analysis (week ending February 20)****
The markets ended the week little changed overall with the Nasdaq the weakest. The technical indicators weakened on balance.
The Nasdaq on Friday had an a/d of 3/5, while up/down volume was 7/12, indicating moderate distribution, on moderate volume of 1.9B shares.
The Nasdaq RSI declined to 44.5 this week, while the MACD remained negative, crossed down. The DMI (ADX), Money Flow, Acc/Dist, Aroon and CCI are negative. The Williams%R and ROC remained neutral.
The Nasdaq McClellan Oscillator declined to -38, approaching the level that has in the past year represented oversold enough to put in a bottom. The Summation Index is at +236, as it is getting closer to the important zero line, and the 10% component is below the 5% one and below its zero line, both negative readings. The Nasdaq index is at the 50 dma and in the past year this has been a place where dip-buyers came in, and it remains to be seen if that will occur again. The 50 dma can provide a pivot point, and should be watched closely this week.
The NYSE a/d was 11/21 on Friday, up/down volume 2/5, on 1.45B shares, so distribution was on moderately light volume. The McClellan Oscillator closed at a -38 with a Summation reading of +868, so it has a chance to turn back up from very positive territory.
The Nasdaq and Dow 200 day moving averages are well below current index values, so the long term up trend has not been violated so far. Also, the a/d lines and new highs/new lows are still in up trends, and they have yet to have a series of lower highs or lower lows, so the market may continue to be firm into March.
At least a retest of the recent recovery highs is likely, with a good chance of higher highs if the volume is heavy or moderately heavy. Thus far, the recent decline may be resetting the supply/demand balance and the technical indicators, with continued mutual fund inflows needed in the weeks and months ahead to drive this market higher.
Some believe the all-time high for the Dow near 11,722 will be reached this year, but for now, the important level is the recent high near 10,750 and then psychological resistance at 11,000.
The Nasdaq has reached 2153 and may retest that level in the first quarter while the prior high of 2328 will be harder to attain.
The bearish case has been made by Richard Russell, a proponent of the "Dow Theory," which has as one of its tenets, the comparison of the Dow Industrial Average to the Dow Transportation Average, and currently the Transportations have made a lower high at the time the Industrials made a higher high, thus indicating a bearish divergence.
Sometimes this divergence is not proven out until months later, such as in prior instances of 2000 and 1987, so it may be a while.
But there is a chance that the highs have been made and that we will see a gradual deterioration in the overall market now.
For now, the odds favor the Dow to at least retest the prior recent high near 10,750 and the S&P 500 to do the same, as it too is very close to it.
Gold and silver prices fell sharply on Friday after weakening on Wednesday and Thursday. Support at 410 was broken mid-week and then psychological support at 400 was broken Friday as the yen fell sharply/USD rose sharply in response to the terror alert in Japan. Gold tested the 394 support level intra-day and closed above it at 397-398, and may need to retest it at a minimum this week. Next support is at 388. Mining shares fell moderately but should drop significantly more if gold cannot hold above 394 and silver above 6.49.
The USD rose sharply and could rally to or near the 88-89 level this week as shorts are covering and momentum is on the side of the bulls. The question is whether the terror alert will stay so high for very long and if it does not, will the yen rise again/USD fall again? The sharp rally was impressive and was on the heels of a bullish reversal last week wherein the USD had traded as low as 84.60 and closed well over a point higher. Even without the terror alert in Japan, the USD was indicating an imminent rally on the basis of one-day bullish key reversal.
Energy complex had been weak in the past few weeks, with crude oil dropping to $32/barrel recently from $35, but has held above $30/barrel and rallied this week to 34 again, and it should retest $35 again in later February or early March.
Bonds have traded between 3.95% to 4.3% in the past several weeks for the 10 year note. It does remain well above the June, 2003 low of 3.07%, and most of the evidence indicates bonds and interest sensitive instruments are in a new and long term downtrend. There is still a fairly good chance that the 10 year note yield will increase to or towards the 5% level later this year, but for the time being, it may stay rangebound between 3.9% to 4.3%.
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 and swingtrading.
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