***** Technical Analysis (May 19)*****
The overbought condition and bearish divergences finally resulted in a very sharp down day today, Monday, with decidedly negative internals. But one down day, even a sharp one like today, does not make a downtrend, just like one sharp up day in a downtrend does not reverse it.
The bears will need to see a bearish follow-through in the next day or two to the downside to increase the odds that a top has been made. Bulls will want to see more than just a technical bounce for a few hours or one day on Tuesday and beyond, and at least a rally this week to provide it to be another up week.
For today, the Nasdaq McClellan Oscillator fell below the zero line for the first time in a couple of months, to -14, and the NYSE Oscillator to -13. Both have 10% indexes that are below the 5% indexes now, a negative change, but both are above their zero lines, for now. Thus, the Summation Indexes are headed downward, and we shall see if that continues or if they can reverse back up. Even if they reverse back up, it might only be temporary.
The Nasdaq TRIN closed at a negative 2.35 while the NYSE TRIN was worse at 3.38, so the junior index still has relative strength, which could change in the weeks ahead if the market does enter an intermediate downtrend.
The Nasdaq MACD worsened to negative as it has crossed down, and it does not reverse back up usually for some time. The bears will want to see a follow through to the downside for the next 2-3 days to confirm the trend reversal. The Williams%R, CCI and Acc/Dist worsened to neutral and the DMI is barely positive. The Money Flow weakened a bit but is still positive as is the Aroon. The RSI fell sharply to 53 from 65, and could fall below 50 in the next day or two.
The hourly stochastics are oversold at 3 and 0% for the NYSE and Nasdaq, respectively, but the dailies are crossed down now at 47% and 56%. Weeklies are still crossed up but weakening.
The sentiment indicators have been portending a trend reversal for a couple of weeks now, especially the VIX/VXN MACDs, and the bullish advisors vs. bearish ones.
The indices are still above their 200 dmas but they had gotten parabolic and could go lower to or below their 50 and 200 day moving averages. The Nasdaq 50/200 dmas are at 1421/1352, well below current prices, and the 50 is crossed over the 200 for now.
The question is whether this is just a profit-taking correction within a longer term up trend or the beginning of a trend reversal. Only the next few days or 1-2 weeks action will provide most of the answer from a technical standpoint.
A bounce on Tuesday morning is likely and the true test will come later in the session and in the days to come. Look for the market internals, and especially up/down volume, to signal the answer.
The Summation Indexes reached lofty levels recently along with some extreme readings in technical indicators (such as the DMI) and we started having some bearish divergences.
But if we get more negative divergences during the bounces and rallies in the next week or two, then it could be a bearish harbinger of things to come in the months (not weeks) ahead.
And if the next rally does not take out Dow 8800 and Nasdaq 1600, and on heavy volume, then a top is most likely made, with a steady downtrend to ensue.
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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