***** Technical Analysis (July 6))****
This is an new TA update.
Today Friday saw a sharp decline in the major indices as MMM and AMD reported bearish fundamental news and the job growth data was weak along with higher wages, and was used as an excuse for selling.
The NYSE a/d was 3/5, u/d vol 2/5, on moderate volume of 2.06B shares. The Nasdaq a/d was 8/21 and the u/d vol was very negative at 2/7, on moderate volume of 1.8B shares, thus the Nasdaq internals have been quite negative for the last two sessions.
After a bullish confirmation day on June 29, the market has had two distribution days, which has clouded the technical picture, after an apparent bottom in June.
The McClellan Oscillators and stochastics remain positive for most indices, despite the weakness late this week, as the Nasdaq Osc ended at +6 and the NYSE Osc at a stronger +31, down from their recent peaks.
It should be noted that the Nasdaq is more heavily weighted with technology stocks (semiconductor stocks have been a relatively weak sector) while the NYSE is more balanced and has more energy and commodity stocks than it used to, which accounts for part of the relative strength. Also, there has been a preference for quality as evidenced by the NYSE Composite, the strongest index of late.
The daily stochastics and MACD remain crossed up, bullish, for the Dow, NYSE Composite, and S&P 500, while the Nasdaq has mixed signals there. The 60 minute stochastics are near 0% and their "d" are also very oversold, setting up a possible low soon, but selling pressure has to dissipate for that to occur as stocks can stay oversold with a "stochastic drag" with incessant selling.
This week the market has been nervous about the N.Korean missile situation and the continuing fear that the FRB will keep hiking rates and also that the economy is going to be in recession in the near future.
Crude oil prices reached a new all-time high this week but closed at $74/barrel, and down on Friday. Other commodities were basically flat but have rallied in the past 3 weeks as well.
Be sure to use the advantages of the "top-down" approach, a paradigm in technical trading. The bottoms-up approach refers to the idea that market timing is not used and that the goal is to select strong companies from a fundamental standpoint to buy and hold.
The "top-down" approach refers the the idea that one first ascertains the trend of the market, the strongest or weakest sectors for that trend, and the strongest or weakest stocks within those sectors, to trade, all with the trend. For example, recently the oil sector has been among the strongest while the semiconductors have been among the weakest. So when you see the market trending up, you would select the strongest oil stocks to go long, and when the trend is down, you would short the weakest semiconductors.
Market prices get overdone on the sell side as well as the buy side, and they got too oversold in June and are currently in the process of resetting the supply/demand balances and technical indicators.
The question is whether stocks are in a new uptrend in the short-intermediate term (2 weeks to 2 months) as they have been for the past few weeks, or if it is only a short-term technical rally before another leg down to new lows.
Obviously no one knows for sure, and so one looks for the signals and setups to tell us which one is probably is. Right now the market has not given another S-I term sell signal yet but the market needs to reassert its bullishness by rallying in the next next day or two to avert a technical breakdown. We have seen a couple higher highs and higher lows in the major indices, and need to see a bullish reversal soon.
Oil, gold, transportation, and steel stocks have led the way since 3 weeks ago, and other sectors have relative strength (e.g. beverage, food and telecom) by virtue of their defensive qualities.
Watch for the next technical signals early in the week, at the close of each day, for market trends.
For breadth momentum charts, see the chart link below and modify it:
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 the -800 area that frequently indicates at least a ST or IT bottom, and has turned up.
The Nasdaq McClellan Oscillator and Summation Indexes are linked below:
stockcharts.com
The NYSE Summation Index hs risen from -500 to -232, and the Nasdaq Summation from -800 to -600, and we will probably know if they can keep rising by mid-week.
The indicators from IBD are little changed from last week, with sentiment negative and the NYSE specialists remaining more short than the public.
Odds still favor a lower trading range this year, if not an outright cyclical bear market, with the possible exception of the Dow reaching its recent highs. 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 in an extended corrective move up, and that will be signalled if we break above the resistance levels mentioned earlier, and if we then make a higher low.
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 (gold usually rallies if the US dollar declines) and copper was about $4/lb, and will trade in a lower range for a while, but can rally along with oil and growth stocks and the major indices. 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.
Thus, the expectation is that the overall market trend will be up but choppy, and like much of 2004 and 2006, the energy sector will outperform most others, especially oil E&P's, refiners, drillers, and oil equipment/services companies, as we are now in favorable seasonality for gasoline and crude prices. Thus, aggressive traders may consider overweighting in oil-related stocks in particular, and also some metals and mineral stocks.
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. |
