Light volume, end-of-month pre-holiday trading gave bulls the edge Friday, as the Nasdaq and Dow transports pushed to new 12- month closing highs. The SPX lagged behind but still closed comfortably above the 1000 level. With the indices closing just below their session highs, there will be plenty to cheer on Tuesday, but whether it's by bulls or bears remains uncertain.
Daily COMPX candles
Friday's trading saw the COMPX consolidate Thursday's close above 1800, adding 10 points to close at 1810.45. The small move took place on light volume within the ongoing cycle up-phases on the daily cycle oscillators. This cycle has been dominant for the past several months, and while the sensitive 10 day stochastics are within topping territory, the laggier Macd is still in a strong bull run. Unless this week's overall light volume advance gets proven on Tuesday to have been a blowoff top in the daily cycle, bulls can continue to buy the dips above the steeply rising trendline currently at 1790, with tight stops of course. Bears will wait for a breakdown.
30 minute 20 day chart of the COMPX
The dominance of the rising daily cycle oscillators is proven by the now-trending 30 minute cycle oscillators. The most bearish attribute of this chart, other than the double top printed on Friday, is that the up-trend is too steep. The bounce from Tuesday's pullback has created a bearish ascending wedge, which ordinarily would be a relatively high-odds short candidate, waiting for a failure of the lower trendline. However, we've been seeing these patterns fail with increasing frequency, and an upside break is easy to imagine given the recent action on the COMPX.
The COMPX remains the strongest index, with the OEX and INDU actually on daily oscillator sell signals. My bearish hesitation, and my warning for dip-buyers, is that the Nasdaq leading in light volume, end-of-month trading is a sign of performance chasing and "window dressing" for monthly fund statements. In other words, there are non-technical reasons for doubting the sustainability of this week's rally. There's nothing to do but keep stops under longs, and watch for a potential failure of that lower rising trendline off last Tuesday's low. Tuesday should resolve the uncertainty one way or the other.
Daily INDU candles
The INDU is the weakest index, with the SPX in the middle. Again, the "bluest" of the blue chips lagging the more speculative Nasdaq does not reflect well on the current rally, but we will trade what we see in any event. The year highs were not tested in Friday's trading, and the pattern of the advance appears as a weaker rising wedge on the 30 minute candles below, taking a gentler rising angle than that on the COMPX. If there's going to be a failure, the INDU appears to be telegraphing it the clearest. The daily cycle oscillators remain on sell signals, though the decline thus far has been minor.
Traders should watch the lower 30 minute support line at 9360. With an 80 point range within the wedge, there's room to scalp bounces with a tight stop underneath, while bears can wait for a failure at 9440, hopefully on a blowoff opening on Tuesday. A breakdown of this formation projects to 9240 support if the pattern fulfils.
20 day 30 minute chart of the INDU
Daily OEX candles
Like the INDU, the OEX continues to lag the COMPX, but not as badly. The daily cycle oscillators are still on sell signals, but another up day could change that. Descending trendline resistance at 504 has capped every advance since June, and it will take a great deal of commitment from bulls to reverse the oscillator downphase, take out that trendline and challenge the year high above 510. On the 30 minute chart, we see the steeper rising bear wedge, narrowed to a 2.5 point range between 501.50 and 504. Resolution is due, and despite the strength at Friday's close, the onus remains on the bulls within this bearish chart pattern.
The VIX broke back below 20 on an intraday basis this week. During recent years, the relatively few such occurrences have lined up well with significant tops in the market. As also occurs at such tops, observers note that things are somehow different this time, that the indicator is broken, et cetera. Upgrades are fast and furious, bullish sentiment abounds, and all agree that the indices are going higher. These are all characteristics of the current market, but whether it needs to progress further or not remains to be seen. All can agree that the prevailing conditions are dangerous for bulls and bears alike.
20 day 30 minute chart of the OEX
Daily QQQ candles
The QQQ remains the pride and joy of bullish traders, and no wonder. What is a clear bear wedge for the INDU and OEX is a mere pullback and resumption of the steep uptrend below the middle rising trendline, with the Qubes never falling far enough away from the primary rising channel to actually break into a new wedge. The oscillators are pinned in overbought, trending higher under the influence of the rising-though-toppy daily cycle oscillator. The rising trendlines have narrowed to less than a 20 cent range, and Tuesday promises to be a significant session in determining where we go next. A break below 33.10, confirmed by a failure of 33.00, targets Fibonacci support below 32.70, with an ultimate target of 30 on a bear wedge breakdown. However, such a move could arrest the ongoing up-phase on the daily oscillators, which would have traders viewing the rising "channel" as a "bear wedge" projecting to significantly lower lows.
20 day 30 minute chart of the QQQ
If I sound ambivalent, it's because I am. On the one hand, the price action has been very bullish, particularly on the COMPX and QQQ. On the other, there are chinks in the bullish armor. While these may constitute a "wall of worry," the bulls are within areas where even conservative bears will be willing to try again. Breadth, sentiment and volatility remain extreme, and next week should go a long way toward separating the wheat from the chaff. I'm hoping for a blowoff upside move at the open to permit me to join those conservative bears, but will be watching the trendlines posted above as primary decision points. And, whatever happens, whichever direction we target, tight stops and extreme caution will be the rule.