***** Technical Analysis (July 17))****
This is an new TA update.
Today Monday saw the major indices mostly up very mildly while the internals were very mixed.
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 NYSE a/d was 2/3, u/d vol 9/13, on moderate volume of 2.2B shares while the Nasdaq a/d was 5/9 with u/d vol just slightly better than 1/1, on light volume of 1.57B shares. As mentioned in an earlier TA update, the market was expected to bounce today or Tuesday as it became extremely oversold in the short term, but the intermediate term could see more weakness.
The Nasdaq McClellan Oscillator declined to -49 and the NYSE Oscillator declined to -27, pushing their respective Summations downward. Daily stochastics remain bearish and the next rally will likely be ephemeral and fail badly.
Oil and gold stocks fell sharply today with spot/futures prices declining and as investors sold resource stocks and are raising cash and going even more defensively into bonds and consumer staples and utility stocks.
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.
Crude oil prices may decline to the $68-$73 range, and that may trigger a technical rally, but it is unlikely that oil prices will fall sharply or stay down. The economic slowdown and geopolitical events are going to keep oil and gold prices firm.
As mentioned earlier, oil and gold stocks were expected to participate in the decline eventually and today they did.
Now we can expect oil to be rangebound until it finally breaks out, which will be to the upside, to at least $80/barrel. Thus, oil stocks may firm up when crude oil prices do.
But the overall market is likely to have another leg down after a technical bounce/rally in July. The Nasdaq is in terrible shape, technically, and seasonality helps the bearish case.
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. If one believes in Elliot Wave theory, it is probably hard to make a case that Wave 3 (down) has not started now.
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. |
