***** Technical Analysis (July 26))****
This is an new TA update.
Today Friday saw a strong rally with good internals.
The NYSE a/d was 4/1 as was the u/d vol, so the TRIN was a neutral 1.00, instead of a very bullish .60 or so which is what one would expect with a 4/1 breadth figure. Volume was heavy at 2.5B shares.
The Nasdaq a/d was 21/9 while the u/d vol was 9/2 on moderately light volume of 1.9B shares, so it was not as positive due to the light volume.
The Nasdaq McClellan Oscillator rose to +24 while the NYSE Oscillator rose to a bullish level of +52, which indicates strong momentum. For the day it was encouraging that finally the Nasdaq outperformed the S&P500 on a percentage basis by over 50% and by 100% over the Dow. It needs to stop lagging those two indices on any future rally days if this uptrend is to extend for weeks instead of days.
In order for this rally to be extended, other sectors need to join the rally as well, and they did today.
If we are indeed in the midst of a technical rally, it has been and will be choppy, for a little longer. If we can work our way up, albeit in choppy fashion, the market may eventually gain momentum.
Now i believe the corrective rally has a good chance of reaching Dow 11,500 and SPX 1325, and should last at least until mid-August.
Geopolitical events could sabotage the bulls while the oversold condition allows for this technical rally because the selling has exhausted itself for the time being until the supply/demand balance (and commensurate technical indicators) have a chance to reset.
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
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.
I can be reached at drbob512@msn.com. |
