It was only a matter of time before the conviction of the bulls was tested as it was
yesterday. It's easy to be bullish when stocks are going higher, but until yesterday,
we didn't know if they'd keep buying if stocks started falling. Now, however, we know
there are some buyers who are determined to keep this rally going at least a few days
longer. This points us in the direction of bullishness at least a few more days, but
further out, we're seeing a substantial decline
NASDAQ COMMENTARY
Shortly after the session opened Tuesday, the Nasdaq went from bad to worse as the
composite made a new two-week low, and had been down as much as 1.5 percent from
Monday's close. But, the bargains looked to good to pass up, and the index rallied
back to a gain of 1.0 percent. In so doing, the uptrend was recharged. Even today
investors continue piling into stocks, not wanting to miss out.
That recovery, in fact, pushed the composite back above both the 10 and 20 day
exponential moving averages. This is a primary buy signal. Confirmation of these
signals is advised when stocks are volatile (as they are now), but today's follow
through is largely serving as confirmation. The fact that there is a seven point gap
between yesterday's high and today's low only strengthens that confirmation. However,
the day is not over yet. The true test will be a close today above yesterday's close,
or at least a close above the 10 and 20 day EMAs.
Our charts today include stochastics, and the Chaikin line we've been following
recently. As regular readers know, being stochastically oversold is no guarantee of a
bullish reversal. That's why we wait for stochastics to confirm that the oversold
condition is correcting itself. As of Monday, stocks indeed are correcting this
condition, indicated by both of the stochastic lines rising above the 'oversold' 20
level. The Chaikin line also looks bullish, rising towards the critical zero line.
The cross above the zero line is the official buy signal. At its current pace, this
will happen in a matter of days, barring any market disaster.
So how high do we go from here? There are two potential stopping points for the
Nasdaq. The first is 1685, where we topped out three times in the last month (see red
dashed line). Breaking above that, the rising resistance line (dark dashed line)
indicates that we could move as high as 1750 with relative ease. It's critical that
you understand this bullishness is a short-term forecast, on the order of days. Read
the OEX commentary below to understand why we're bearish further out.
Support is at 1635. resistance is at 1685 and 1750.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 100 (OEX) COMMENTARY
Like the Nasdaq, the S&P 100 chart (as well as the S&P 500 and the Dow) is looking
generally bullish in the near term. Rather than rehash the same data and highlights
used for the Nasdaq commentary, we're taking a look at a weekly OEX chart to
illustrate why we're intermediately bearish. All indicators on our chart have been
adjusted for slower-moving weekly data.
The red line on our chart is a 10 week exponential moving average. We haven't traded
under since March's breakout, although we have found support there a few times
(including yesterday). While technically this is bullish, the 10 week line is one
we'll be keeping an eye on, as a break under it is typically an intermediate-term
sell signal.
Most other indications, such as stochastics, are bearish. Stochastic lines have
indicated an 'overbought' market for a few weeks now. But as we have said before,
it's best to wait for evidence that an overbought condition has started to correct
itself before taking action. That correction is now becoming evident, as the slowK
line (green) has fallen under 80, and the slowD line (red) is poised to fall under 80
soon. When both cross below 80, that's an official sell signal. Obviously since this
is based in weekly data, we can still get a few more day-to-day gains without much
impact on our weekly stochastic lines. In fact, we're even expecting a few more days
of gains.
But as we mentioned, we have reason to be bearish in the intermediate-term. Look
closely at the weekly price bars; this is our second week of lower highs and lower
lows. Even if we close this week at a gain, failing to close above last week's high
isn't particularly encouraging.
Sentiment indications are also pointing to the excessive optimism that is typical of
a market top. We'll use the VIX to illustrate this point, although other sentiment
indications are in agreement. At 21.62, the VIX is indicating that investors are
relatively fearless right now, which is a problem. The last time the VIX was this low
was in March/April of last year, right before a major pullback. With a pretty nice
run over the last few months, stocks are potentially set up again for such a major
pullback. Since this is an intermediate indication, it could take several days, if
not weeks, to solidify.
Support is at 484. Resistance is at 502 and 513.
Weekly Chart of S&P 100 (OEX)
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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