In Wednesday?s MidWeek Update we explained what would constitute a bearish chart by
the end of the day Friday. Now we?re seeing that chart, even with some decent buying
Friday. It?s not so much what the indexes did on Friday that?s bearish ? it?s what
they didn?t do that should concern you
Nasdaq Commentary
Thursday?s 2.8% drop of the Nasdaq Composite nipped most hopes of this rally
recovering. We got some buying on Friday, but it proved to be far too little to
offset the fall we began late in the session Monday. We closed the week out near the
low end of the trading range, locking in about a 1.5% decline in this key market
average.
As we said, the Nasdaq is bearish not just for what it did do, but also what it
didn?t do. It did cross under the 10-day exponential moving average (EMA) in
Thursday?s drubbing, and actually fell as far as the 20-day line before finding
support. But 20-day EMA may have been overrated as a support level, as we fell under
it on Friday. We managed to climb back above it by the end of the session, but not
before making the low for the week at 1688.82.
So what didn?t happen? We closed under the 10-day EMA for the week, and seemed to
actually meet resistance there during Friday?s session. More than that, we didn?t
make a higher high Friday. In fact, the last four days of this week we saw lower lows
coupled with lower highs. In other words, despite a gain on Friday, the trading
channel is clearly sloping downward now.
And we can take an important cue from volume. Friday?s gain was on the lightest
volume of the week, so don?t assume that all the buyers are jumping back in now. In
fact, the volume trend shows the opposite to be the case. The Chaikin line pairs up
volume with market gains and losses (most readers are familiar with the Chaikin line
by now), and with the downward slope of the line and its current cross under zero, we
know the heavier volume is on market losses ? a bearish signal. The bearish
stochastics cross under confirms what is already becoming fairly evident on charts.
There are two things to note here, though. Friday was option expiration, which can
and does skew stock prices (both higher and lower). Perhaps Friday?s gain was a
fluke, or perhaps the gain would have been bigger had it not been an expiration
Friday. In any case, we often find that the Monday after an expiration is a volatile
day. We?ll want to assess what traders and investors do on Monday when they come back
from the weekend before passing any final judgment on the market?s direction. There
is a possibility that they?ll come back ready to buy.
The other thing you?ll notice on the chart is that our intermediate-term support line
has yet to be breached. This will be the final step in the onset of an intermediate
decline, and until we break under it, the bulls have a glimmer of hope.
Support is at 1670. resistance is at 1776.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 500 Commentary
On our chart of the S&P 500 (SPX) this week, we?re seeing some different patterns
than those of the Nasdaq. It?s still provides a short-term bearish bias, but for
slightly different reasons.
The most notable difference between the Nasdaq and the S&P 500 is that the S&P
already broke under its intermediate-term support line (dashed) on Thursday. That
bearish indication was reversed Friday when we moved just back above it, but part of
the technical damage has been done. This is why we prefer to wait for a second close
under resistance lines ? just to confirm the trend.
A similar (yet more confusing) scenario is playing out with the S&P 500?s 10-day and
20-day EMA lines. We fell well under them on Wednesday and Thursday, yet managed to
recover on Friday to get right back to them again. This isn?t a complete surprise, as
we have seen that the 10-day and 20-day levels are tough to cross (under or over).
Part of the reason this is the case is that a great number of traders (including us)
keep watch of those two EMA lines, expecting support and resistance there. Since many
traders typically take some sort of action when those key levels are touched, we see
a buying and selling tug-of-war of sorts when we approach them. Given the current
condition of a choppy market, any cross of these lines is significant to traders.
Keep an eye on these lines Monday, as even a small movement could put us on one side
or the other of the 10-day and 20-day EMAs.
The technical read for the S&P 500 is still a bearish one. The MACD lines are
falling, maintaining their indication of falling momentum, which has been the case
since late June. Stochastics is also giving a sell signal.
So what?s in store for the S&P? The trend is technically bearish, with some technical
sell signals confirming that decline. Yet the approach back to the 10 and 20 day EMA
lines is significant. Parked right between them, the S&P is essentially being held in
check ? at least until Monday. Option expiration days can wreak havoc with prices, so
we?ll get some more meaningful answers early next week. But for now, price action
dictates that the bias is generally bearish.
Support is at 962 and 978. Resistance is at 1015.
S&P 500 Chart - Daily
The Bottom Line
The coming week is pretty light in terms of economic announcements, but there is an
important one coming Monday. The leading indicators figure is an accurate
intermediate-term indicator of what you can expect over the next few months, based on
what we?re seeing now. It?s unfortunate that it is often overlooked. Most economic
indicators are historic data, information from the previous quarter. The leading
indicators figure, though, is at least somewhat predictive. It?s tough to trade off
of it, but it may useful information to know for your longer-term holdings.
Market turbulence is one of the signs of topping, and that?s something that?s we?re
seeing plenty of at this point. It?s critical that you use your support and
resistance levels to accurately spot the breakdown when it begins. We haven?t really
had any major ones yet, but the intermediate-term support lines on the charts above
are going to give you your first clue. In the event that we don't get that breakdown,
use your resistance levels to spot the breakout.
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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