As I mentioned in this morning's first update, many global indices currently claw their way up from recent lows. Many have posted new P&F buy signals, but trade just under or near key resistance, so that their actions mirror those in U.S. indices. Watching them can help us gain insight into the strengths or weaknesses seen in our own.
Today, the Nikkei started out with a gap above the 8110-8125 resistance, but soon dipped into negative territory before beginning a tortured climb back toward that resistance. Never making it back to the opening high, the Nikkei closed just below that 8110-8125 resistance, posting a gain of 26.21 points or .32%. Tomorrow should bring the presentation to the government of an emergency economic relief plan hammered out by the three ruling coalition parties. Recent gains in the Nikkei have reflected optimism that the plan will stem the selling of bank-held shares, but any disappointment or delay in the plan could send the fragile Nikkei plummeting. It's reached a new P&F buy signal, but remains just under the P&F bearish resistance line, and the bar chart looks far less optimistic than the P&F chart. Japan's economy is the second largest in the world, so the performance of this index should be of importance to us here in the U.S.
Germany, the world's third-largest economy and the Eurozone's largest, struggles with its own government program to avert yet another recession. Germany took a step closer to recession today with unemployment numbers again rising, to 10.7% or 8.9% when adjusted for EU standards. Germany's Chancellor Gerhard Schroeder attempts to enact measures that will ease unemployment and avert another recession. Those plans include cuts in jobless benefits and reduced protections from dismissals in hopes that smaller companies will increase hiring, but the measures face fierce opposition. Germany's DAX struggled to hold onto the psychologically important 3000 level today, ending just above that level at 3005.72, down 61.23 points or 2%. The FTSE 100 lost its battle to maintain 4000, closing down 13.50 points or .34%, at 3992.90; while France's CAC 40 maintained 3000, closing down 33.60 points or 0.41%, at 3023.96. All these indices are on current P&F buy signals, but all struggle to maintain psychologically and historically important levels.
With these performances in the foreign markets, the stage was set for an indecisive day on our indices, and that's what we got. As I scan daily charts for the various indices, I see a succession of small-bodied candles that indicate that neither the bulls nor the bears could prevail. Major support held, but so did major resistance. Most U.S. indices opened near the daily pivots, traded down to S1 levels and then stayed somewhere between R1 and S1 during the day. One exception was the NDX, which ended the day just below the daily S1 level of 1137.80, at 1135.85. Jonathan Levinson writes the Market Wrap tonight and does an excellent job covering the Nasdaq-related indices, but I thought it might be instructive to look first at the NDX before turning to other indices.
I've included an NDX 30-minute chart because it depicts the H&S pattern that formed on the NDX over the last several days of trading. Today, the NDX briefly violated the 1134 neckline of the H&S formation, but pushed back above that level just before the close.
NDX 30-Minute Chart:
Today's daily pivot, S1, and R1 levels are labeled on this chart, and the slanting blue lines compose an upward-slanting regression channel that has contained NDX prices since mid-April. Both the 30-minute oscillators shown here and the 60-minute (not shown) indicate very short-term oversold conditions as the NDX approaches the bottom of that regression channel, indicating the possibility that the NDX could attempt a move back up while those oscillators reset themselves. ADX shows something interesting, however, on both the 30-minute and 60-minute charts. For the first time since early May, selling pressure has been increasing (blue line on ADX) and buying pressure has been decreasing, with a bearish cross being made. ADX (pink line) has been slanting down, now just above 20, indicating that the momentum of the rally has been slowing. If selling pressure continues to increase, bears may gain more confidence selling on resistance, and may even gain the confidence to press the NDX below the H&S neckline and out of the regression channel.
NDX Daily Chart:
Daily stochastics and RSI as depicted on this chart indicate that any upside may be limited, with all indicating bearish divergence (higher prices with equal or lower tops on the oscillators). However, here the ADX shows that the selling pressure has not yet affected the daily ADX indicator. Although there may be a slight flattening of the ADX near 26, it has not yet turned down, showing that bearish traders must tread gingerly when considering selling resistance. If that upward trend is still intact, the oscillator evidence can not be trusted even when showing bearish divergence. A move down through the 1126-1134 congestion zone might convince bulls that the bears mean business however, turning down the daily and weekly oscillators alike. In fact, a sustained move through that 1134 H&S neckline tomorrow predicts a minimum downside target of 1104. A move above the 1160-1180 zone would put fear into the bears, with the 1320 level being the next strong resistance to show up on the weekly chart. However, with daily and weekly oscillators indicating overbought conditions, it seems unlikely the NDX could push that far.
Unlike the NDX, the Dow Jones Industrials traded almost all the way back up to today's R1 level after touching the S1 level, then bounced again from the S1 level at 8529 late in the day, almost reaching the daily pivot again. The Dow Jones Industrial's decline might have been much steeper except for the performance of Coca-Cola (KO), gaining a whopping 2.25 points (5.49%) to 43.27 on a Morgan Stanley upgrade to overweight from equal-weight. KO holds a 3.61% weighting in the DJI average. Today's KO gain was made on almost three times average daily volume, at 15,457,000 shares.
Like the NDX, however, the 30-minute and 60-minute ADX levels for the DJI have shown a slowing of the recent uptrend as selling increases. Unlike the NDX, that lessening of the upward trend shows up on the daily ADX, too, with the daily ADX level sloping down to 19.12, indicating that we should be seeing range-bound trading on the DJI. That below-20 ADX number shows that it should be time again to sell resistance and buy support. That also means that we should be able to trust the evidence given by the oscillators.
The daily DJI chart shows that RSI turns down, showing bearish divergence with equal RSI highs and higher price highs. Daily stochastics are now in territory indicating overbought conditions, but they have not yet turned down. Weekly 5(3)3 stochastics (not shown) are also at levels indicating overbought conditions and have flattened.
Dow Daily Chart:
Today's S1 level at 8529 (blue horizontal line on the chart above) also lies near historical support and near the midline of the regression channel that contains the Dow's prices. A violation of that level could send the Dow back to test 8400, while a bounce could move the DJI back to the top of the regression channel, currently just above 8700, but rising each day.
Those of you who follow my commentary on the Market Monitor know that I follow the OEX more than the other indices, so I'll concentrate on the OEX rather than the SPX. Most characteristics of the two are similar, with both now trading near the apex of a rising wedge seen on the daily charts. Although I've been watching these rising wedges for some time, they have now narrowed so tightly that they're at risk of losing their relevance. If the OEX and SPX do not definitively violate these wedges within a couple of days, prices will instead issue out through the apex of the wedges, negating their relevance.
On the chart below, the rising wedge is depicted by the green lines, while the horizontal blue lines depict today's S1, Pivot, and R1.
OEX 60-Minute Chart:
The 468.80-469.30 zone gained special significance today for the OEX, as it was the location of recent historical S/R, as well as the location (469.30) of today's S1 level. It was also the neckline level of a potential H&S formation for the OEX, a neckline that the OEX refused to violate today. That H&S formation is more easily discerned on a 10-to-30-minute chart than on this 60-minute chart.
As the above 60-minute chart shows, the 5(3)3 and 21(3)3 stochastics cycled all the way down toward levels indicating oversold conditions while the OEX tested that S1 and neckline area, with the fast line of the 5(3)3 stochastic already trying to hinge back up. RSI flattened, however and is inconclusive, although recently, the RSI has been making a series of lower highs while the OEX formed that H&S pattern. This shows bearish divergence, but so far, it's bearish divergence that refuses to be confirmed.
Here, too, the hourly ADX shows that the recent uptrend has lost strength, at least on a short-term basis, and selling has increased with the line representing selling pressure crossing over the line indicating buying pressure. The ADX level hints that on a short-term basis only, it's possible to buy support and sell resistance on the OEX, with overhead resistance between 475-476 and nearby support at 469. A sustained move through either level tomorrow would violate the rising wedge seen on the daily chart, however, and might bring more selling or buying, no matter what oscillators and ADX currently predict. One note: I would expect some volatility around such a violation, so you might consider waiting for confirmation before acting on the violation.
OEX Daily Chart:
The daily chart also shows oscillators in territory indicating overbought conditions, hinting that those in bullish positions should remain prepared to protect profits. RSI and the shorter-term 5(3)3 stochastics have already begun to turn down, but these oscillators do not always deliver reliable signals in strongly trending markets, and the daily ADX still indicates that this is a trending market. Although buying pressure may be decreasing, selling pressure still seems to be decreasing, too. Here, too, though, a strong and sustained move through the rising wedge, either to the upside or the downside, might prevail over anything the indicators have to say. A sustained move tomorrow below 469 confirms the H&S formation and predicts a minimum downside target of 462.80, the support area for the OEX during the late-April consolidation. At that point, it would not be unusual to expect a retest of the rising wedge if one has not yet occurred, while hourly oscillators reset themselves to overbought.
A sustained move through 476 tomorrow might bring about a retest of the 487 highs that have marked the upper boundary of the OEX's trading range as seen in the weekly chart below. With daily and weekly oscillators already showing overbought conditions and with hourly oscillators likely to have reset themselves to overbought by that time, I would expect the OEX to have a tough time pushing past that resistance without another pullback to gather strength.
OEX Weekly Chart:
Those of you who have read my commentary on the Market Monitor have seen this weekly OEX chart on several occasions. The red horizontal lines delineate the 385-487 trading range for the OEX since last July. The rising wedge is shown in green on this chart, too, and the long-term descending trendline is depicted in teal. This is a semi-log chart because these give a better and more realistic depiction of price action when the move has been a big one. This chart shows why there's so much indecision currently on the OEX. A lot depends on the outcome of the next few weeks' trading: a new bull market for the OEX or a return to the trading range with the decision postponed.
Jeff's last Index Wrap included weekly and monthly pivot analysis points. I've used Q-charts high, low, and closing figures to calculate the following daily pivot analysis points for tomorrow:
SPX: R2 941.80 R1 935.71 Pivot 931.13 S1 925.04 S2 920.46 OEX: R2 476.92 R1 473.62 Pivot 471.26 S1 467.96 S2 465.60 DJI: R2 8680.87 R1 8620.73 Pivot 8574.87 S1 8514.73 S2 8468.87 NDX: R2 1161.28 R1 1148.56 Pivot 1139.97 S1 1127.25 S2 1118.66 COMPX: R2 1532.09 R1 1519.43 Pivot 1511.24 S1 1498.58 S2 1490.39At the time this article was completed, Stockcharts.com had not yet updated the bullish percent charts, but if you'd like to check them for yourself later tonight, the appropriate symbols are $BPSPX, $BPOEX, $BPINDU (for the Dow Jones Industrials), $BPNDX, and $BPCOMPQ (for the Nasdaq).