The last week has been good for the composite, as it continued its bullishness to a
high of 1457 just earlier today. In doing so, after yesterday's big 27 point jump, we
find the index well into the resistance zone we had established a week ago.
This upturn happened with surprising ease, largely in part to Tuesday's strong
earnings data. As a result, we broke through a couple of key resistance points at
1430 and 1450. That leaves the remaining hurdle at the 1465 level, where we made a
high in January.
As of right now, we've got the momentum to cross that resistance point too.
It's not just the breaking of resistance that looks bullish. If you look carefully at
the chart, you can see a triangle formation (see the dashed lines). In simple terms,
the triangle is an indication of price consolidation into a single point, right
before an explosive move. This particular triangle is an ascending triangle, which
suggests that the volatile move will be higher instead of lower. With yesterday and
today, we're already seeing price increases that indicate a breakout may be brewing.
There are some bearish concerns too. We've been watching the stochastics chart for an
entry into the 80+ 'overbought' area. As of today, both stochastic lines are there,
signaling that we're at a dangerous pivot. In other words, the balloon is very
inflated and vulnerable to the slightest flaw. With the current rally still not yet
confirmed, enter into long positions with caution. When the stochastic lines start
falling under the 80 threshold, that may be the beginning of the pullback.
If you've been reading the weekly and mid-week updates, you'll know that we were
expecting April to finish strong based on earnings, but after that our outlook was
bearish. That is still largely our expectation. The one refinement is that we're now
extending our short-term bullishness a few more days out, towards the end of the
month. This will give the current momentum, as well as the bullish triangle, enough
time to run its course.
Beyond that, we're still looking for intermediate term weakness based on the
exceedingly high optimism, as indicated in the unusually low VIX and VXN levels.
Support is at 1435 and 1415. Resistance is at 1465.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 100 COMMENTARY
The OEX chart is making a pattern similar to the Nasdaq Composite, in that an
ascending triangle is forming. What's additionally bullish is the 10 and 20 day
exponential moving average crossover of the 200 day simple moving average (in green).
We've been watching the 200 day line with great scrutiny over the last month, as it
seemed to present itself as a problem. However, over the last few sessions we've
gotten firmly above it. The fact that the 10 and 20 day EMA also have surpassed it is
just icing on the cake.
For those reasons, like the Nasdaq, we're expecting some bullishness, at least in the
short term. But further down the road, we're somewhat skeptical. The low VIX that
makes us bearish for the Nasdaq also leads us to bearishness for the OEX. The fact
that we are stochastically overbought only adds to the worry.
It can't be denied, though, that crossing the 200 day line is monumental. This is
highly bullish, and one of the key ingredients to a recovery in the stock market.
Perhaps this is the end of the secular bear market and the beginning of a bull
market. However, based on the VIX and the fact that summer is weak for stocks, we're
sticking with an intermediate bearish outlook until we have reason not to. That bias
would only be revisited with a successful test of the 200 day line as support.
Support for the OEX is at 450 and 445. Resistance is at 475.
Daily Chart of the S&P 100 (OEX)
Bottom Line:
Again, we advise not getting too deep into long positions, although there are a
selected few strong points for stocks. If indeed this is the end of the bear market
and the beginning of a recovery, there will be plenty of gains to be made after the
upturn has proven its mettle. If this turns out to only be a pocket of strength prior
to a pullback (as it seems), the consequences could be moderately regrettable. In
other words, the risk doesn't really justify the reward.
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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