This market has become a master at sending mixed messages, moving just enough shake
people out, but not moving consistently enough to be very profitable for anyone.
Despite a lot of noise, media attention, and speculation about the future of the
stock market, the S&P 500 is now exactly where it was in mid-June. The Dow has done
slightly better, while the Nasdaq has done even better than that, gaining 7.8 percent
since mid-June. But all of the indexes are struggling to break above recent highs,
despite how bullish things may 'feel'. Knowing the difference between a 'fakeout'
market and a 'breakout' market is critical at these times, and this will be our focus
today.
NASDAQ COMMENTARY
Last Friday afternoon it finally looked like the Nasdaq had broken through resistance
and was back on a path for new highs. All that changed by the end of the session
though, as we saw a major pull back to close under the key 1776 level that is turning
out to be a major hurdle. Such an abrupt bearish reversal looked like it would carry
over into this week, especially considering that stocks were generally overbought.
But so far this week, that hasn't been the case - we've been heading slightly higher,
and now find ourselves again hitting the key 1776 level. As of the time of this
writing (11:30 am EST), the high for today 1775.91. Until the Nasdaq proves it can
close above it, we can't justify being bullish. And even if we do close above 1776,
it would still be too early to make a bullish call. We saw a high last week of 1812
(with Friday's spike), so that trail has been cleared out already. Getting there the
second time wouldn't be as difficult, so we won't be fully bullish until we close
above 1812.
So what's the next move? As we mentioned above, this market has been an exercise in
interpreting mixed signals. We're actually seeing bullish momentum, yet we're also
seeing plenty of reason for stocks to head lower again. Perhaps both interpretations
are correct; you just have to understand the time frames and possible reversal
points. Let's explain.
Our MACD (Moving Average Convergence Divergence) lines in the bottom portion of our
chart have been mediocre as signal lines during this relatively choppy market. The
basic signal here is a cross of the fast moving average (blue) over or under the
slower moving average (red). While it seems at first glance that we got several
accurate crossover signals over the last two month, a more detailed look will reveal
that most of those signals came after the majority of the move was over. That's the
tough part about a lagging momentum indicator such as this one -it's designed to spot
longer-term moves, but the market hasn't made any long-term moves in weeks. So, we're
not expecting stellar results from MACD lines. Still, though, it is providing a
general hint of which way momentum is pointed. And as you can see, the MACD lines
made a bullish crossover only a few days ago. Just don't count on this bullish surge
lasting very long - none of the rest have.
The other reason we're expecting a pull back in the near future is based on our
stochastic lines (middle of chart). With both lines near 80 (and recently above 80),
we can see that stocks are technically overbought. While we have seen before that the
market can stay overbought for long periods of time, this hasn't been the case over
the last two months. Instead, we've seen downside each time we became overbought.
The short-term momentum looks to be with the bulls at least for a few more days, with
the understanding that moving higher from here will be met with more and more
resistance. In the bigger picture, we've got a lot of things working against the
market, so our intermediate outlook is bearish.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 500 (SPX) COMMENTARY
This week we'll revert back to a weekly chart for the S&P 500, to give you a real
sense of just how range-bound we are. By the end of May we had broken into the
960-1015 range, and we haven't been able to get out of it since then. The last four
weeks have been mildly bullish, bouncing back after touching 960 in July. But as you
can see, we didn't even get to 1015 last week, and haven't even threatened to do so
this week. So even if this current momentum does eventually carry us to 1015, we
wouldn't adopt a bullish bias until we closed above it.
But the 1015 level may not even be the primary concern anymore. The March-June rally
was what pushed us to current levels, and the weekly MACD lines (middle of chart)
indicate that we entered into this current range with plenty of momentum, since the
MACD lines were rising. While the market has moved sideways over the last two months,
the bearish MACD crossunder from last month is a pretty clear sign that not only has
the bullish momentum tapered off, but we're starting to see mild bearish momentum.
This does not bode well for stocks over the next several weeks.
Volume is equally discouraging. True, the index has been headed higher for the last
three weeks, but on tremendously low volume. On the bottom portion of our chart, you
can see that over the last eight weeks, the heaviest volume has been on down weeks
(red volume bars), with the lighter volume during up weeks (green volume bars). This
tells us that there are generally more sellers than buyers, despite the fact the S&P
500 hasn't made any major moves in either direction. The volume picture will not
improve this week. Although the week is not over yet, volume has been very light and
we're headed into a holiday weekend. You can expect Friday to a pretty light day.
Considering the fact that September is typically a bad month for stocks, we're headed
into resistance, and stocks are technically overbought, the overall outlook is
generally bearish.
Daily Chart of S&P 500 (SPX)
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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