***** Technical Analysis (June 16)****
This is an updated TA update.
Quadruple witching hour is the expiration of options for individual stocks and indexes and futures contracts, on the third Friday of every March, June, September, and December, usually causing high volatility, primarily from unwinding of arbitrage positions. Since we rallied the prior two days into the witching hour, unwinding and profit-taking were the themes, resulting in a down day.
On Friday, the markets were somewhat volatile on heavy volume, but the decline appeared orderly and not necessarily indicative of a trend. The prior session saw the market breadth and u/d volume figures improve greatly over Wednesday's action, thereby improving the technicals for the market significantly. The decline for Friday and the fact the market was weak into the close usually implies a weak opening the next day, which is Monday, but in this case there is not a correlation due to it having been an options expiration day.
If this rally is to be substantial and not moribund, then the market internals including TRIN, should be positive on Monday. If so, then this rally could have legs enough to last 2-4 weeks, but every day the market action and technicals should be evaluated.
We will know later if this is a technical rally that fails or not, but for now it very much appears to be more than just a very ST bounce, especially for high relative strength sectors, such as refiners and other oil stocks, and high relative strength stocks in other sectors.
We need to hold support from Wednesday's close, and that appears doable.
I see important resistance at S&P 500 1290 and Nasdaq 2230, with a gap at 2270 that has a chance of filling. There is no guarantee that we will get there due to the technical damage to the market, but if we do, it will not be easy to bust through.
Remember that we became extremely oversold and now many investors/institutions have lots of cash, and there are those who have to cover their shorts, to fuel this ST rally.
The weekly and monthly MACD's are clearly crossed down, indicating that the odds favor any rally failing in the next few weeks, unless the quality of this current rally signals otherwise.
For now the daily stochastics have crossed up strongly for all indices, and the MACD for the Nasdaq has turned positive while it is close to turning positive for the other indices. It is not common for the daily stochastics to suddenly turn back down/cross down after having crossed up strongly from 0%, so some continuation of rising prices seems likely in the days ahead.
The indices got parabolic from their EMA's, on almost all timeframes, so that too implied that a ST technical rally was due.
Watch the market internals and the quality of the rally in the next few days to determine if this rally will be a short-intermediate term (2 weeks to 2 months) rally or if it will fail in the next 1-2 weeks. Bear market rallies can be very sharp, such as those that occurred in the first half of 2000. If this is not a cyclical bear market, then the rally can be much longer. If we bearish divergences when we top out, the case for a cyclical bear will be strengthened.
stockcharts.com
(change this chart to $compx, weekly charts, and change the lower settings to slow stochastics, macd, and Williams%R to get the best chart)
The Nas weekly Summation-related charts are below:
stockcharts.com[m,a]waclyyay[pc30!c20][vc60][iud20!ua12,26,9]
The lowest chart, the weeklies, has finally reached -700, an area that frequently indicates at least a ST bottom.
The Nasdaq McClellan Oscillator and Summation Indexes worsened today, but the Oscillator could rally above the zero line on Monday or Tuesday, and turn the Summation Index upwards:
stockcharts.com
The Summation Index has reached a very extreme intermediate oversold reading now, and at least a rally to reset the indicators is likely.
The indicators from IBD are little changed from last week, with sentiment still slightly negative and the NYSE specialists remaining more short than the public.
For now, the best way to trade is to ignore longer range forecasts and to trade the short term and short-intermediate term swings based upon your technical analysis.
While there has been an extreme amount of damage done to the market technicals in the past 5 weeks, stocks may rally for a while now, and it is possible to trade a rally in a bear market or a rangebound market as long as it lasts for more than a day or two, which is likely this time.
Odds still favor a lower trading range this year, if not an outright cyclical bear market. If one believes in Elliot Wave theory, it is probably hard to make a case that Wave 3 (down) has not started now, but perhaps it is possible that it will be delayed one more time, and that will be signalled if we break above the resistance levels mentioned earlier, and if we then make a higher low.
Otherwise, this rally is just a corrective move, failing in the not too distant future, to be followed by a lower low or a series of lower lows in the quarters to come.
Fundamentally and from a macro-economic viewpoint, the technicals imply that China's growth may slow temporarily at least from an average of 9% to perhaps 7-8%, and India's growth may slow from an average of 7 1/2% to 6%, and the US economy may slow from an average of 3.5-4% the past year to 2.5-3% for the next few quarters.
Precious metals and basic metals, such as copper, may have reached their top when gold was over $700/oz and copper was about $4/lb, and will trade in a lower range for a while. Zinc and other minerals will also trade in a lower range than their lofty ones this year. But the stocks that are in these sectors can still make good money, and their stock prices may recover some in the weeks to come.
Because the technicals of the market are so damaged, it is probably not wise to assume that it was just a severe but normal correction within a cyclical bull market, but to remain flexible within a swing trading style, and be aware that we could be in the early stages of a cyclical bear market.
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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