***** Technical Analysis (June 13)****
This is an updated TA update.
Weekly and daily stochastics' "k" are both at 0%, for the Nasdaq and virtually at 0% for the "d" for the S&P500, so it will take extreme selling to prevent a technical rally now. Because the "d" is still very high, this rally will fail, and the lows will be tested in a few weeks and probably will break.
The weekly and monthly MACD's are clearly crossed down, indicating that the odds favor any rally failing.
The OBV and other money flow indicators are negative, as money is leaving stocks, with some going into bonds.
The indices are getting parabolic from their EMA's, on almost all timeframes, so that too indicates a ST technical rally could be imminent. But watch for market internals to see if sellers can reasset themselves or if they dry up for a while.
The fact that the yield curve has been inverted on a number of times lately, and currently the 2 yr bond yield is above that of the 10 yr, is a danger sign for the economy, as it frequently indicates that a significant economical slowdown and sometimes recession, is going to occur in the quarters ahead.
Another technical indicator that is signalling that an intermediate term bottom is not near is the new highs vs. new lows, wherein the new lows for the exchanges is much lower than is common at important bottoms, which is at least 400 new lows and that figure can approach 1,000 new lows at bottoms.
The market made a low over 4 weeks ago, rallied for over a week and has now dropped again to retest those lows, mostly breaking down below support levels.
As most technicians agree on, the Grand Supercycle ended in March, 2000 for the Nasdaq and in the next two quarters for the S&P 500 and Dow, thus the new Wave 1 (down) started then and ended in March, 2003 for all indices, with Wave 2 (up)starting then and may have ended in May, 2006.
I had thought Wave 2 might end in August/September, 2006 or early next year, but the market action of the past month makes me infer it (some call it the cyclical bull) ended in early May, leading to Wave 3 (down) starting then. Wave 3, when it occurs, is very severe.
For those who read my TA column at Raging Bull in early March, 2000, remember that I wrote, "The Calm Before the Storm," wherein I believed the market was in for a major correction in late March or April as it was getting parabolic. In actuality, it was the end of the great bull market and the beginning of the secular bear market. Later that summer, it became apparent that the trend had reversed.
In the past couple of months, I have written here that the Spring rally was a rally not to be trusted for the long term but that it would lead to a correction. In the past week or two, it has become apparent that the correction was going to be a trend reversal instead.
The short term of 3-6 sessions could see a technical (corrective, not impulsive) rally, perhaps leading the Nasdaq back to 2155. The S&P 500 could have have its rally top out near 1275.
The short-intermediate term trend of 2 weeks to 2 months appears problematic (i.e. down), as the weekly indicators and trends, such as on the link below, show that the market has momentum to go down farther:
stockcharts.com
(change this chart to $compx, weekly charts, and add TRIX to the slow stochastics and MACD) to get the best chart)
It is troublesome that there has not been a sharp, key bullish reversal following a selling climax, nor a general market sentiment of panic and "sell at any price" mentality.
IBD shows the Public/NYSE Specialist Short Sales ratio at 7.26, which indicates that the specialists are a lot more short than the public, an extreme reading, that tells us that they are not close to buying but are still very short.
IBD shows ratio of price premiums in Puts vs. Calls is at .65, a medium reading that needs to get below .30 or so to indicate a bottom.
The VIX and VXN readings could portend a ST bottom in the market now but a long term bottom probably needs to see them much higher. They are in definite uptrends, nonetheless, which is bearish for the market.
While the put/call ratio has been close or over 1.00, that has given false signals lately and can be over 1.00 many times in a bear market.
Thus, these technicals do not indicate that we are at or near an intermediate or long term bottom yet.
Ralph Acampora and some other technicians believe this decline is more than a correction, but rather is a cyclical bear market, lasting several quarters if not 1-2 years, and that the cyclical bull that started in March, 2003, is over.
It now appears likely that Dow 10,000 to 10,200 will be tested in the next 2-4 months and the Nasdaq will test 2,000 and S&P 500 the 1200 level. Semiconductors, biotechs, and other more speculative sectors, will be punished the most.
The Nas weekly Summation-related charts are below:
stockcharts.com[m,a]waclyyay[pc30!c20][vc60][iud20!ua12,26,9]
The Nasdaq McClellan Oscillator and Summation Indexes are still negative, the McClellan Oscillator failed to hold above the zero line on the recent rally, and is now portending more weakness ahead vis-a-vis technical bounces/rallies from time to time:
stockcharts.com
These breadth and breadth momentum indicators were in negative territory for most of the 3 year bear market from March, 2000 to March, 2003, going back and forth from extremely oversold to neutral or slightly positive.
I am also disturbed that there was not a strong enough bottom made 2-3 weeks ago with a selling climax and that the ensuing rally has failed miserably.
For the time being, until a successful double bottom retest and/or a true selling climax occur (and these are likely to occur at much lower prices), one should be very nimble as a fast swing trader and not be little invested, or should be selling/shorting the technical (impulse) rallies. A tradeable bottom on the long side for position traders is weeks or months away, except for a very ST bottom. A tradeble short may occur with a technical rally to resistance levels, especially if bearish divergences show up.
Even IBD says that we are in a downtrend, and they are rarely bearish on the market. William O'Neill's research has indicated that after a potential bottom has occurred with a reversal day, you need follow-through with conviction by the 4th day after, and last Thursday qualifies as the first day due to the strong bullish key reversal. That means the market needed to see a strong rally day by Tuesday or else the Thursday key reversal will fail and the market will likely resume its downtrend. This 4 day rule is accurate about 80% of the time, and we did not get that follow-through day today, Tuesday.
We also need to see the VIX and VXN at much higher levels, and sentiment to be much more bearish, and be bearish for a while, for an intermediate term bottom.
If we truly are in a Wave 3 now, the Intermediate term trend of 2-6 months is down, with a series of lower highs and lower lows, as well as the Short-intermediate term of 2 weeks to 2 months.
The Kondratieff cycle proponents believe that we are in a very long period of deflationary pressures as the "K Winter" kicks in, having barely started in the year 2000. If true, then the commodities' bull market is over, having its bubble burst last month, and would mean that Don Coxe, Jim Rogers and other commodity bulls are wrong. While they have been right the last few years, it does not mean that they could not be wrong this time. The cycle (including all four seasons) averages 55 to 60 years, can be a little longer or shorter, and the "winter" might be 8-15 years long, sometimes longer.
I had believed that China and India would not reach overcapacity until next year or the following year but I am re-examining that thesis now. They may need a period of adjustment, i.e. slowdown.
The commodities are either having a very large correction or or entering a bear market. China and India are either slowing down temporarily to be followed by another boom in growth and demand for materials, or their growth has topped out and on its way down. The technicals of the commodities markets will signal which one proves out.
For the sake of those who are long and plan to remain long traditional stocks, I hope I am wrong for their sake (but TA does not use hope), and the market will tell us in the next few weeks if it has indeed started.
One should not ignore the plethora of intermediate and long term technical data and signals.
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.
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