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Index Wrap

New highs

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Equities broke to new 52 week highs today, with the Nasdaq posting its highest close since April 2002, the Russell 2000 its highest close since May 2002, and the Dow Transports its highest close since July 2002. The Dow, SPX and Nasdaq all set new 52 week closing highs.

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

Daily COMPX candles

The COMPX daily chart shows today's parabolic move higher, adding a sixth straight day of gains. The move has brought the COMPX back to the broken trendline from the end-of-July correction. This could be construed as a "return to the scene of the crime" rally, whereby the price returns to the failed trendline that had kicked off an earlier correction. Such an interpretation would fit with the topping stochastic and the "blowoff" type move that brought the index to close at its highs in what proved to be a sharp one and half hour closing rally.

That said, the COMPX set a new 52 week high, and shorting breakouts isn't the quickest way to financial freedom. There were 246 new 52 week highs to 4 new 52 week lows, with 852M advancing shares to 332M declining. Volume was strong at 1.78B shares. My instinct is bullish above 1800, but I won't think of going long before seeing the quality of the bounce following the now-overdue pullback.

The 30 minute chart shows the oscillators in sharp uptrends, with the Macd trending uselessly in overbought territory. Note the upside breakout from the bearish wedge today, catching both bulls and bears by surprise.

30 minute 20 day chart of the COMPX

Daily INDU candles

The INDU has also gone parabolic, launching from a moderate uptrend with this afternoon's vertical move. The 10 day stochastic has been putting in a steady pattern of higher lows since July. Today set yet another record for the NYSE A/D line, with up volume nearly tripling down volume (671M : 243M) on moderate volume of 1.443B shares.

As the bear wedge failure and the sharp oscillator up-trends on the 30 minute chart below illustrate, this is nothing less than a perilous market for bears. Bulls have only needed to buy the dips, which have tended to be near the open, and either sell the afternoon surge or just hold on. How long we can expect to see this continue is anyone's guess, but trading without stops simply isn't an option in markets like this. Above the lower wedge trendline, traders can look to buy the dips with tight active stops. With the upper Bollinger band broken on the afternoon surge, some kind of pullback is expected at the open, and the resulting bounce will tell us a great deal about this rally above 9500.

20 day 30 minute chart of the INDU

Daily OEX candles

In the weekend wrap I noted the possibility of an imperfect reverse head and shoulders on the OEX above the descending trendline. This occurred today. Reverse h&s patterns belong at the bottom of a decline, and not at the top of an advance, but so it goes. The move, if it is indeed that formation, projects to 520 OEX if it fulfils completely. Note, meanwhile, that the OEX did not set a new 52 week high, as the June high has yet to be exceeded. Nevertheless, I had to squint at my chart to compare the price levels, and unless the daily oscillator downphase reasserts itself, we should see it tomorrow.

The upside break on the OEX 30 minute chart has caused the oscillators to begin trending in overbought, and while we might be seeing a parabolic blowoff "return to the scene of the crime", bears will have to be courageous to step in front of this move. 520 is setting up as an important resistance level.

20 day 30 minute chart of the OEX

Daily QQQ candles

The break to its 52 week was less violent on QQQ. The daily cycle oscillators appear to be topping but show no sign of rollover as yet. Again, it looks bullish above the lower ascending trendline at 33.50, with numerous supports below. Recall that last week's advance was on low volume, and so a break of that lower trendline will find less support than we'd normally expect. In other words, there's great downside risk from here, and bulls need to watch their stops.

20 day 30 minute chart of the QQQ

For tomorrow, the game plan is to be patient. Bears have no way of knowing how far this speeding train can run, while bulls are holding a very extended, relatively unsupported market.

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