A stronger-than-expected week pushed the major indexes back into bullish lines. How
long will we stay here this time? Based on sentiment, we're still due for a
pullback, but somebody better tell the bulls that - the volume trend is slightly in
their favor again. Meaning, we may see just a little more upside after all. As of
Friday, though, we're left right at the pivot
Nasdaq Commentary
It looks like this rally has a little life left after all. It's still weakening, but
based on Friday, we're going to head into the coming week with some momentum. Once
again, the 10 and 20 day EMA lines are the key indication, as we crossed back above
both of them by the end of the week.
But making a continuation of Friday's bullishness will be tough. We've yet to break
above the new resistance line (dashed red line) established over the last two weeks,
and we've faltered at the 1740 level a couple of times too. We stopped just short of
there Friday, to close the week out at 1730, so we'll need to see some strength soon
if we're going to keep the rally alive.
That said, it looks like the buyers are willing to make that happen. In the middle of
the chart you'll see a new volume analysis. The volume on 'up' days is green, while
the volume on 'down' days is in red. In general we can see that the 'up' volume is
slightly greater than the 'down' volume', but there's an additional clue here. Notice
the height of the consecutive green bars or consecutive red bars are - 'up' volume
typically increases, while 'down' volume usually falls. In other words, people are
buying into rallies, yet sell less and less as stocks decline.
We're also seeing a short-term buy signal from the stochastic lines, as the %K line
is crossing over the %D line.
From here the two big levels to watch are 1740 and 1776, where we topped out two
weeks ago. If we do indeed cross over 1740, we do expect to hit 1776 again, so our
short term bias is a bullish one. Further out, however, we do still expect a
pullback, and 1776 may just be that reversal point.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 500 Commentary
Last week we saw the S&P 500 break under our intermediate-term support line,
prompting our bearish bias. This week, though, the index fought to get back above
that support line, and finally did so on Friday, moving back above the key 10 and 20
day EMAs in the process. This has short-term bullish implications, as we ended the
week with plenty of momentum.
We also got bullish indications from our stochastic chart, as the %K line crossed
above the %D line - an official buy signal. We'd rather confirm this signal with a
MACD crossover, which at the current rate could happen as early as Tuesday.
Although our expectation is now for a bullish surge, we're still sticking with the
idea that we're headed lower in the bigger picture. The overly-bullish sentiment,
such as the low VIX, is just a sign that investors expect something the market just
can't keep delivering. In other words, all good things must come to an end, including
this rally. As for the potential reversal points, start with the 1000 level. The
market loves round numbers (in both good and bad ways), and stopping just short of a
big one on Thursday and Friday is not likely a coincidence. We've not been able to
cross it after three attempts, pulling back each time. You may also want to mark the
1015 level, since we topped out there three times in the last month also.
That said, there's still a little room left for some more upside before hitting major
resistance. So, don't be shocked if we go higher Monday - but getting past 1000 will
still be tough. Based on Friday, there's certainly enough buying interest to make
that happen, but we'll want to see it early next week.
S&P 500 Chart - Daily
The Bottom Line
We've got a pretty big week ahead in terms of economic announcements, not just
because of the number of them, but also because they're important ones. The GDP
figure may be the most important, but you may see the most volatility on Friday
following the unemployment and ISM announcement. This week's initial unemployment
claims at 386,000 was a surprise, so be alert on Thursday for a continuation of that
trend - you may get a hint at any change in the unemployment rate.
As we said, the indexes are at a pivotal point, and it's crucial to use your support
and resistance lines to mark the breakdown or breakout. There are two key resistance
lines for all the major indexes - the highs from two Monday's ago (7/14), and the
highs from Thursday (7/24). Although that will be tough to do, getting above both
would be a very bullish sign. Otherwise, watch for the second consecutive close under
our main support lines.
Have a Great Trading Week Ahead!
Price Headley, CFA, President
With, James Brumley, Research Analyst
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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