The A-B-C down extension finished on Friday (they don't have hit exactly) and when this happens you have to expect something else. I expect Q's will bounce and perhaps rise to the upper trend line. Should this bounce materialize, then it could last up to a week but I do believe the bounce will fail and the Q's will head south again, taking out the important swing low at 83.74.
We have positive divergence in the Sto, RSI, & CCI plus the Aroon Oscillator, not shown, is at -100, which is oversold. In the 60min time frame, the RSI for the Q's is at 29 so is showing oversold. And, also in the 60min time frame, the RSI is also showing positive divergence.
All of the above suggests the Q's will bounce and if the Q's bounce then so will the other indexes. While I do think the Q's will be contained within the confines of what may ultimately prove to be a down trending price channel, if the Q's can break out of the channel at around 87, then I'm wrong in my assessment and the 5-year rally should resume. But until I see a convincing break out of this channel, I will remain cautious and flat this sector.
All IMHO and subject to change without notice.
GL in the week ahead.
Comments
stockSMASH
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I must admit that the 3 day strength of SPY has amazed. I sold my TWM near its recent top 2 days ago and bought TNA, also been day trading it, SPX is reaching all the way back up to critical weekly algo line. It should fail there and begin a slight down wave. I am long tza now but keep money in hand to buy TNA when 5 min algo shoots signal. It gives money smooth as butter. I day traded FB short yesterday and the weakness in tech should alarm. QQQ up against 20 day MA and a significant algo. Next week, it should wave down, and from there retest 200 ma or at least point that way. When the big serious drop occurs, market will not give that away until it is too late. It will feint with a powerful run up and the typical light pullback that everybody buys... but will have successful and viscious selling candles, then bounces to draw the sheep back in. I do not know when that happens. I keep a little Short SPY and DIA now. Next week I expect sum red. That's my take. I would appreciate your thoughts and analysis. Have a pleasant Holiday weekend. Biff from Orlando FL
SimGlenn
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This could be a leadership change typical of late bull markets. That leads to the major indices (SPX, DJIA) outperforming COMP, RUT, etc., as investors move into safer sectors. That would indicate a major market top may be forming this year, or early next. If COMP resumes its leadership role, the bull probably continues another couple years.
CurtisM
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biff & Glenn, I am short term bullish because of this 4 hr ES chart: gyazo.com/34cb72fa738fd1e2bd3658ad355012c7 If this plays out, and it has so far, then SPX should run into the mid 1880's before we have problems. The way the market moved this past week, then SPX 1885, or so, could happen by the end of trading on Tuesday. Once that happens then I'll be looking for either a pause or maybe a change in direction. Don't know yet. Breadth indicators pushing toward the top of their ranges but not in extreme overbought territory yet. Could happen by Tuesday.
SPX down 7pts on the month now and while I do think that there is evidence of market weakness showing up in the monthly chart, if SPX closes green for the month, then I'll have to start watching for a red May. As Glenn pointed out, often times when there is a change in leadership, it indicates an end of the current bull market. If you look back to 1999/2000 you will see that the Q's and RUT clearly topped out in March of 2000 while SPX didn't appear to be phased and hung on and was still trying to put in a new high as late as September of 2000 before the wheels finally came off.
But we are not there yet. Even though IWM, QQQ, & IBB have been hit hard over the past few weeks, I do not have a 'sell' signal in the weekly charts for these. It's close on IBB but that's not close enough. For any downside to be of significance, then we should get sell signals in the longer time frames.
We'll just have to see how it goes next week as earnings will be coming in hard and heavy.
GL
stockSMASH
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for the record, SPX has blown a major algo line on monthy as well as weekly. Month aint over but weekly is. A shorter term bounce is possible and even expected, after a predicted gap down monday that may trade up or set up for a smaller leg up... but that said, we are heading for the lower bollinger band on weekly chart near 1770. Make no mistake that breaks of certain algos make for extremely high predictability medium term. That said, after that point low point, many models suggest a vicious bounce before any more downside. Some models say we do a descending triangle down.. others a test up to the algo that was broken on weekly and is about to begin curving down. That high algo made me very confident that market was going DOWN. People need to reset their minds that this market has a very LOW probability of resuming the massive uptrend like they experienced in 2013. The fact that interest rates remain low and can for some time... and the very gradual decrease in QE all lend to an environment that sans a geopolitical black swan, will not allow for a 2008 style crash...but in fact, a whipsaw of ups and downs is more likely this year after we let the steam off and da big boyz get their profits then repurchase as the sheep sell in panic. Be prepared for the rollercoaster year 2014
SimGlenn
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Thanks Curtis. You have been spot on with this pullback and your caution. I would say the COMP has breached its 150 DMA, do you agree? It appears that a test of the 200 DMA may be in order before this correction is over. A breach there would be very serious, while a hold could lead to the 5yr continuation trend.
COMP has been the market leader and probably needs to continue in that role. The SPX mid-year upper channel is 2000, so a pullback near 1800 is potentially a perfect setup for a 2 month monster rally near the upper channel. That could prove to be a perfect time to drastically reduce exposure. If I'm correct, that would be a rally for people to remember.
CurtisM
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Glenn, yeah. Pretty clear failure of COMP at the 150. This hasn't been tested as a resistance point yet so might not prove to be much resistance for now.
Technically speaking, Q's, and thus the COMP, are set up for a bounce but I think it will turn out to be a suckers rally. The measured move on the bearish rising wedge for SPX should take SPX back down to around 1740 so while SPX may bounce from 1800, and it's close now, I think the bounce will fail long before any real upside move can get established.
As soon as I can, I'll put up a monthly SPX chart to explain what I'm seeing and why I think we're headed south for several months.
SimGlenn
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The COMP 5 year mid-channel is about 3800. That may ultimately be the most reasonable level for any correction, any index. It puts it right back on long term trend and helps extend the bull market. These indices have recently broken above the 5 year upper channel, as we have discussed before, leaving little upside potential. COMP has now breached the 1 year lower channel which makes me suspect the pullback to the 5 year mid-channel may be next. This would be a healthy correction as long as it does not get out of control...
CurtisM
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Glenn, looking at the 5-year chart on a monthly basis puts the lower channel about 3800 now so I guess I'm not looking at the same thing. However, 3800 looks like a good resting place as that lower line has been support numerous times before.
I'm waiting for TV to update their charts so I can put up a SPX monthly chart. Until they do, take a look at the charts in the links below to get an idea of what I'm looking at now. For reference, you might want to do a screen capture of these.