Home on the Range
The markets treated us to a relatively calm day of rangebound trading with no surprises other than the lack of any surprises. We saw an extension of the trading range that has held across the indices, leading nowhere fast and causing traders to wonder whether we're looking at a consolidation/continuation pattern here at the highs, or a gradually forming top. Today's action occurred despite a nearly continuous stream of rumors concerning the war, surrenders of troops, captures and defections of heads of state, etc. Following Joe Granville's view that "news is noise", we'll analyze the relatively orderly market action seen today.
Treasuries continued to sell off, with yields up strongly on the day, no doubt assisted by the fed's reverse repurchase agreement in the amount of $1.25B. Despite the movement of money out of t- bills, however, equities traded within a predictable range throughout the day. A late afternoon surprise had the indices print new highs on a 5 minute candle bearish ascending wedge, with the exception of the COMPX and QQQ which were unable to surpass the morning highs. The COMPX and QQQ notably unperformed the other indices, failing to print new highs toward the close, perhaps a sign of things to come after outperforming their peers during the past months. Volume was respectable but lighter than yesterday at 1.72V NYSE shares and 1.67B COMPX shares.
Volatility was slightly higher, with the VIX adding .4 to close at 36.18, QQV +.64 to 42.69 and VXN +.18 to 48.20. Despite the gains on the day, volatility was higher, which is a divergence we've been observing throughout the week.
Without zooming in on the subatomic (5 minute candle) charts, the end of day push printed an ascending or rising wedge on the indices. Chart patterns are not infallible, but according to Bulkowski in the "Encyclopedia of Chart Patterns", this formation tends to break lower roughly 75% of the time. Suffice it to say that the move to the day highs was not done in a healthy manner, and leaves the indices set up on a short term basis for a weaker open, or a push higher within the formation followed by a pullback or breakdown out of the 5 minute candle formation shortly thereafter.
On to the charts:
The INDU is trading on buy signals across the indicators I follow but stopped in a significant resistance zone. While the close above the widely-watched 8250 was significant, it's far from out of the woods with resistance all the way up to the 61.8 fib retracement off the March low, which falls at 8314.37. Next resistance is at 8506.12, followed by 8869.30. Support below is at the 50% line, at 8142.95, then 7971.53, 7779.78 and 7416.6.
While the oscillators are in bull runs, note that the stochastics are getting toppy, and the volume has been dropping off throughout the week. Combined with the positive VIX today, these indicators should have bulls snugging up their stops to protect profits.
The SPX showed us similar action today, closing right at critical resistance below the 875 line. Fib resistance is just above at 879.19, again from the 61.8% retracement line off the March lows. Fib support is below at 861.95, then at 844.71. We see again the toppy but still bullish stochastics, declining volume as price advances, and VIX divergence today.
The OEX closed at 444.84, just below its 61.8% retracement line which resides at 446.50. Support is below at 437.66, then at 428.83, 418.95 and 400.24. Resistance above is 446.50, 456.38 and 475.09.
As noted above, the COMPX lagged the INDU, SPX and OEX today, and the results are clearest on the candle pattern and stochastics. While candlesticking is not my specialty, the closing print appears to me to be a bearish doji star, which is a topping formation indicating indecision. The stochastics are closer than those of the INDU, SPX and OEX to giving a bearish cross. As well, the lighter volume today confirms the indecision and lack of follow-through at the top, and, lastly, the COMPX closed negative, down 3.43 on the day at 1397.10. Resistance is above at 1402, followed by the 61.8% retracement at 1413.78. Support is at 1385, 1360.25, 1334.99, 1306.72 and 1253.20.
The QQQ is the most bearish of the bunch, with the stochastic oscillator having given a sell signal with a bearish cross from overbought, and closing the most negative of the indices above. Note that the high reported appears to be a bad print, as I would remember having seen a print of 27.76 at some point. Resistance is at 26.84, followed by 27, followed by 27.47. Support below is at 26.49, 26.33, 25.97, 25.04, 24.52 and 23.54.
Aside from the indicators discussed above, the leading weakness in the QQQ should have bullish traders cautious. I am not suggesting shorting this market with abandon, because the events of the past week have shown that caution is the only appropriate strategy. I'm not suggesting going long either for the reasons seen above. There are buy signals on the charts, but others are telling us that this rally is showing signs of weakness and potential reversal. Whatever you choose to do, do it defensively and use stops. With geopolitical event risk at relative highs and no one, from Chairman Greenspan on down to the pundits in the media, can predict the consequences thereof. War has gone from being bullish to bearish and back again, with the interpretation of the news changing almost with each passing hour. Treat it as noise and follow your charts, but above all, protect your capital. Traders are getting their accounts blown out in this environment, and if you're finding it difficult, tricky or treacherous, you're not alone.