Option Investor
Index Wrap

Gasping for Breadth

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Daily Pivots (generated with a pivot algorithm and unverified):

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
DJIA      8758   8719   8683   8644   8608
COMPX     1559   1549   1540   1530   1521
SPX        952    947    943    938    934
OEX        481    478    476    473    471
QQQ      29.18  28.92  28.73  28.47  28.28
In a repeat of yesterday's session, the markets opened on weakness, faded lower, and then pushed to the day highs around noontime, but unlike yesterday, the bulls couldn't hold it together. The fed added a moderate $2.25B in overnight repos with no expiries, and there were clear signs of intervention in support of the US Dollar last night and today, but the indices closed lower than they opened.

The US Dollar Index printed a narrowing wedge or neutral pennant on the 15 minute candles today, coiling around the 94.70 level, while June gold futures managed to hold above 350 for most of the session. The CRB traded lightly negative for much of the day, hovering around the 240 level.

Volume was lighter than yesterday for most of the session but picked up toward the close, with 1.7B shares traded on the NYSE and 1.8B shares on the Nasdaq. As we discussed in the Market Monitor, the lack of an acceleration of upward volume on the failed retest of this potential swing high is a bearish signal. The bulls pushed but couldn't recruit enough buyers to break through. However, volume analysis pales, in my opinion, in comparison to oscillator and pattern analysis, so let's dive into the charts:

Daily chart of the INDU

Today's closing candle printed what looks like a hanging man or dragonfly doji, which is bearish in principle, but the lack of followthrough to the downside after an lighter volume failed breakout attempt doesn't have me snarling just yet. As we discussed in the intraday Market Monitor, there is the potential for a bullish ascending triangle setup, as the lows print ever higher toward the horizontal upper resistance. So far, this interminable, insufferable rising bearflag/wedge is continuing, and while the twitching 10,1,5 stochastic is hinting at another downside break, there's a rising trend on that oscillator commensurate with the ascending wedge/flag. Meanwhile, support should come at the 5 dma, at 8612.

Weekly chart of the INDU

Again, no sell signals here as we zoom out to the weekly candles. The stochastics look like they're getting ready to give us a sell, but anticipating signal is hazardous to trading accounts.

Daily Chart of the SPX

The SPX tells the same story as the daily INDU, although the upper candle shadow or spike shows a little less commitment to the upside from the broader SPX. The uptrend in the stochastic is not present as it is the narrower INDU, and looks to be putting in a lower high on this run. A break below 934, the 5 dma, will give bears their first sign of confirmation of the weakness they've been seeking.

Daily chart of the OEX

The OEX looks weaker than the SPX, and as the "leading" portion of its parent index, this relative weakness is bearish. Note that the weakening trend in the stochastic is more pronounced here, as well as the closing candle today being closer to its supportive 5 dma. Make no mistake- this is a chart that is in an uptrend, and a break higher on volume will erase a great deal of short term bearish expectations. However, the overbought condition on the oscillators, combined with the bearish wedge/flag setup is still convincing.

In case you missed it last night, I've begun tracking the daily and weekly charts of the OEX:VIX and QQQ:QQV ratio. As we've been seeing with the put to call ratio. My idea is to let the machine and its hyperaccurate oscillators follow the relationships that I normally try to intuit during the session and at day's end. We watch the VIX and QQV plummet to new or relative lows, and try to guess when it will turn around, signaling a trend change for the OEX or QQQ. Instead, I've been looking for that trend change by charting the QQQ relative to the QQV, and OEX relative to the VIX, on a single chart. Here are the results:

Daily chart of OEX:VIX

As the OEX rises and the VIX decreases, the OEX:VIX ratio increases, and vice versa. Note that on the daily candles, the ratio is far beyond its January peak level.

Weekly chart of the OEX:VIX

The weekly ratio chart brought us closer to a stochastic cross, but it will take a spike in the VIX or a drop in the OEX to get the ball rolling. Tomorrow will be a telling day in this regard.

Daily chart of the COMPX

The COMPX printed a bearish candle, no hanging man, with the candle body near the lower end of its day range. Like the other indices, there was no sell signal given, and bulls and bears alike will be watching the 5 dma for a first hint of how this week wants to close.

Chart of the QQQ
Like the OEX, the QQQ chart looks weaker than that of its parent index. Today printed a bearish harami cross, pure indecision but with a downward bias. The 5 dma is flattening, and a negative close tomorrow could actually turn it down, which we haven't seen in a month.

I've included the QQQ:QQV charts below:

Daily chart of the QQQ:QQV

The downward spike in the QQV reversed the %D line on the stochastic, but the MacD sell signal is intact. Whether Monday's stochastic sell signal on this ratio gets reversed will be decided by tomorrow's print. A higher close for the QQV or a lower close for the QQQ will strengthen what bears are hoping is a trend chart being printed in this chart.

Weekly chart of the QQQ:QQV

Nothing to add on the weekly ratio chart.

The question posed by the current levels on the indices is growing old, and a break would be expected tomorrow. The ascending triangle or the failure at horizontal resistance should be decided, but then, this is options expiration week, a time when prices have a nasty habit of pinning themselves in impossibly narrow ranges near "convenient" strike prices. For this reason, I'm forced to rely on the trite, hackneyed mantra of confused traders: "Anything can happen." If there is a break, however, I expect it to be a big one, as traders hustle to get on the right side of what should be a directional, trending move. Watch the pivot levels and moving averages and trade safe. See you at the bell!

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