***** Technical Analysis (July 6))****
This is an new TA update.
Today Thursday saw a mild rally in the major indices while the NYSE was stronger than the Nasdaq as quality ruled the day.
The NYSE a/d was 19/12, u/d vol 3/2, on moderate volume of 2.1B shares. The Nasdaq a/d was 8/7 but the u/d vol was negative at 8/9, on 1.6B shares, which is moderately light. The Nasdaq trading index was less negative for the Nasdaq today than yesterday, when it was very high (negative).
The McClellan Oscillators and stochastics remain positive, as the Nasdaq Osc ended at +29 and the NYSE Osc at a strong +49. It should be noted that the Nasdaq is more heavily weighted with technology stocks while the NYSE is more balanced and has more energy and commodity stocks than it used to.
The major averages are close to resistance levels now while the momentum indicators still 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.
Crude oil remained high near the all-time highs it reached yesterday at above $75/barrel, while gold-silver-copper rose today in the futures pits. Some smaller cap oil stocks have recently started to rally as this uptrend has broadened out a bit.
The short-intermediate term uptrend signals are still in effect, and barring bearish news of significance, the market rally should continue for the next few weeks, although choppy at times.
There have been signs (in addition to daily stochastics, MACD, McClellan Oscillator/Summation Indexes) that this rally has more to go, such as the broadening breadth of rallying stocks, limited selloffs for the most part, climbing a "wall of worry," and good leadership provided by a plethora of sectors now.
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.
Oil stocks have led the way since two and half weeks ago, and are now joined by metals (metals rise usually as the US dollar declines, which it has recently and probably has more downside to it) and many other sectors in the past two sessions, as many stocks rallied by 2-5% last Thursday. The question is what sectors will have staying power. If crude remains above $70 (and especially if it trades in the high $70's), then oil stocks will continue their uptrend and if spot prices for gold and silver and copper stay firm, 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-services. Even some semiconductor stocks are starting to participate.
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, and has turned up.
The Nasdaq McClellan Oscillator and Summation Indexes are linked below:
stockcharts.com
Notice that the 10% index has also bottomed out along with the McClellan Oscillator and Summation Indexes.
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 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. |
