***** Technical Analysis (July 3))****
This is an updated TA update.
Today Monday saw another mildly positive market in terms of the breadth and internals. The NYSE a/d was 11/4, with u/d vol 8/3, on 1.1B shares on this pre-holiday shortened session, and the Nasdaq a/d was 16/11, u/d vol 2/1 on 773M shares. It is positive that despite the light volume there were few sellers.
The major averages are close to resistance levels now while the momentum indicators point to higher prices in the next 1-2 weeks, e.g. stochastics, Summation Indexes). We shall see if the market has enough strength to test the May highs, but for now, the ST trend is probably up for most sectors.
The energy, metals and mineral stocks have continued to act well and today was no exception. At first the best of breed start up, then the next quality level, and then the lower quality ones go up if the uptrend is an extended one. One sign of an extended rally is for the market to rally for 3 days, within 3-4 sessions. We have just seen that from Thursday, Friday and today, but since today was a shortened session on light volume, this signal is premature, until we see another good rally day on Wednesday or Thursday.
Many other sectors are participating as well, which is indicative of the good breadth of this rally. One should remain diligent, however, in monitoring the market TA, as there will eventually be bearish divergences as the market tops out.
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 McClellan Oscillators spiked up again to +49 for the Nasdaq and +72 for the NYSE, as quality stocks are leading the rally thus far.sharply yesterday to above +40 now, and they are likely to spend at least a couple of weeks above the zero line, and at some point they will unwind back down. In the period that the Oscillator is in a range between +10 to +50, many stocks will rally, and then the breadth of the rally will weaken.
Oil stocks have led the way since last week and are now joined by metals (metals rise usually as the US dollar declines, which it has in the past few days and probably has more downside to it) and many other sectors in the past two sessions, as many stocks rallied by 2-5% on Thursday. The question is what sectors will have staying power. If crude remains above $70 or rallies higher, then oil stocks will continue their uptrend and if spot prices for gold and silver and copper rally, then those stocks will also perform well.
Finally, non-energy related stocks are oversold now so they too could rally for a while, especially those sectors that have relative strength, such as truckers, transportation-related, and personnel services. Even some semiconductor stocks are starting to rally.
For now, perhaps the best way to trade is to trade high relative strength stocks and sectors, from the long side because in the beginning many stocks will rally but then advancing issues will thin out. If this uptrend is to last a longer period, then the breadth will remain strong for weeks, and may actually improve.
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.
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.
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 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 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.
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. |
