***** Technical Analysis (July 14))****
This is an new TA update.
Today Friday was another down day as the markets have suffered one of the worse weeks in a year.
The market technicals gave negative (sell) signals on Thursday when the daily stochastics and McClellan Oscillators were both negative for the first time in a month.
Friday's action even more confirms the downtrend is now in effect. While the market is very oversold, as evidenced by the 10% component of the McOsi/Summation, any imminent (due Monday or Tuesday) rally may be just a technical one that will fail (it could last couple hours, one session, but probably not much longer) and result in an ensuing substantial decline. Now it appears we will make a lower low in the next 3-6 weeks, before a tradeable bottom may be possible.
Friday's NYSE a/d was 1/2, u/d vol was worse at 7/18, on heavy volume of 2.5B shares, a negative indication. The Nasdaq a/d was 9/20 while its u/d vol was not as bad at 1/2, on moderate volume of 1.8B shares.
Crude oil prices rallied again today, to all-time highs, as there were geopolitical concerns, for a "fear" premium. Oil stocks were mixed, as the overall market decline prevents any sector or stocks to rally strongly.
Until proven otherwise, the market has entered a downtrend, as of this past Thursday, and defensive positions (quality companies and high relative strength sectors, such as oil) and building cash, should be taken as a precaution. Intraday and day rallies might be opportunities to do so.
If crude oil prices can decline $3-$5, then the market may have a respite from the decline but the economic slowdown being signalled by weak earnings guidances may be the bigger problem.
Even oil and gold stocks may start to decline if this downtrend gains momentum.
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.
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 Nasdaq McClellan Oscillator and Summation Indexes are linked below:
stockcharts.com
The indicators from IBD are little changed from last week, with sentiment negative and the NYSE specialists remaining more short than the public. Investors Intelligence shows that there are a few more bullish advisors now than bearish ones, but usually bottoms coincide with more bears than bulls.
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.
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 sideways to down now, 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.
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. |
