***** Technical Analysis (April 15)****
The markets fell sharply this week as confirmation of weakening technicals from the last several weeks.
The Nasdaq has led the way down as is usually the case because blue chip stocks hold up for a longer time and then join in later in the cycle.
The Nasdaq weekly stochastic has been crossed down for many weeks now and finally the "k" is near zero but the "d" is still too high to signal a firm bottom. The daily "d" has now joined the "k" in becoming very oversold near the 10% level, so a technical bounce or rally is likely in the next day or two. It would take a huge amount of selling to prevent this bounce in the near term.
The Nasdaq McClellan Oscillator is below -50 so it is very extreme, as is its 10% index:
stockcharts.com
Another related measure indicates we are nearing a bottom of some kind, probably a temporary one:
stockcharts.com[s,a]daclyyay[df][pc50!c35][vc60]&pref=G
The NYSE Oscillator is not as extreme and probably portends more weakness after a bounce, so that it can join the Nasdaq in being extremely oversold. A bottom usually does not occur until the "generals join the troops," because the institutional investors need to be flushed out along with the public investors via block trades.
The Nasdaq Summation Index is at an extreme level but the NYSE Summation is not.
Usually it is wiser to wait for a double bottom or a higher bottom, before becoming too aggressive on the long side, when the trend is decidedly down, even though some indicators are extremely oversold. What typically occurs is that when the indices get too parabolic from their moving averages, dailies in particular, then a bounce occurs, to be followed by a retest of the prior extreme low.
At that time, a bullish key reversal can occur wherein the market is down sharply intra-day and then recovers sharply to post an outside day to the upside, and on heavy volume. Some double bottoms do not show this climactic selling but they do show bullish divergences (e.g. less extreme negative readings).
Needless to say, many other technical indicators are very oversold, such as the MACD, DMI (ADX), RSI, and CCI, especially for the Nasdaq. The S&P 500 has relatively strength against the Nasdaq and Dow, but it too has become weak and in a downtrend.
Virtually all sectors have participated in the downtrend, even the energy sector. Crude oil has declined to just above 50/share this week and the next support may be at 46. The strong support is at the 41 retest level but spot price may not reach that. Those interested in going long the energy stocks could look for bullish divergence when the market makes the second low (e.g. stock prices being relatively stronger than spot prices).
Bond prices rallied as a flight to quality/safety. Gold stocks have lagged the spot price for some time
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. There are many other TA structures, strategies and systems.
Dr.Bob no longer hosts Stocktimers meetings on Sunday nights at AOL. |
