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Index Wrap

Rare Air

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The indices marched higher on strong volume, with the COMPX, INDU and SPX all printing new 52 week closing highs. Only the QQQ, NDX and Nasdaq futures closed fractionally lower. The Nasdaq traded over 2B shares, with advancing volume doubling declining volume on the Nasdaq and nearly doubling it on the NYSE.

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

Daily COMPX candles

It's difficult to see on the daily candle chart, but that small smudge of green above the wedge trendline is an 11 point tall candle, representing a new 12 month closing high for the Nasdaq. I believe we're up to 7 white soldiers on the candlestick pattern, with nothing bearish about it. That said, the daily candle stochastic rolled over today, which is a bearish divergence, implying that the dominant cycle we've been following is in the process of topping. While nothing prevents the oscillator from beginning to trend in overbought territory, that is the less likely scenario based on the oscillator alone.

On the 30 minute candles below, the oscillators gave clear buy signals starting in the mid-afternoon. They remain within a pattern of higher lows, however, following the steeply-rising price increases on in this timeframe. As the uptrend of higher oscillators lows is now near the top of their range, the absence of a price breakdown on the COMPX will cause them to become pinned in overbought territory as the price trends higher.

As we recall from 2002, the best short setups were those in which the shorter and longer timeframes were lined up in overbought and rolling over. If this holds true again, then we're very close to the top of the present move. However, only gunslingers will consider standing in front of what has proven to be a powerful train, and less aggressive traders will want to wait for a breakdown below the lower ascending trendline on the 30 minute candle chart at 1840.

30 minute 20 day chart of the COMPX

Daily INDU candles

The INDU joined the party today, closing at a new 52 week high as well. The move consolidated yesterday's gain, and whether the next significant move is to the upside or downside remains the only question. Unlike the Nasdaq, the INDU's stochastic is coming out of a downphase prematurely, which looks considerably more bullish than the rollover commencing on the Nasdaq's daily chart oscillators. It will take further price gains from the INDU to complete it, however, and on the 30 minute candle chart, we see those same sell signals printed during the mid- afternoon. Support at 9550 is the level to watch, below which 9500 will be in play.

20 day 30 minute chart of the INDU

Daily OEX candles

The OEX added to yesterday's gains but fell 4 points short of the imperfect reverse head and shoulders formation 520 target discussed last night. The stochastic continues to print its negative divergence here, though another day of gains could bring it around to join the Macd. Note how the cycles are poorly defined relative to the Nasdaq. The aimless, flat rectangle printed since June has chopped up the oscillators on the OEX, while the Nasdaq, with its stair-step advance, has given its oscillators more movement to measure.

The 39 minute candles show the return-to-the-scene-of-the-crime correction to the upper flag trendline. The oscillator setup on this shorter timeframe implies the same "do or die" setup that we saw on the COMPX and INDU. Any failure to break down here will cause them to become pinned as the price trends higher. The combination of these oscillators and the 10 day stochastic above implies a pullback tomorrow. So long as the lower trendline remains intact, bulls have cause to celebrate, but bullish profits can be protected on the upper flag trendline at 513.

20 day 30 minute chart of the OEX

Daily QQQ candles

QQQ was the laggard today, actually closing fractionally lower. Note how the sell signal on the stochastic is further along than on the COMPX, as the QQQ, the tracking stock for the Nasdaq-100, tends to lead the broader index. If so, then it's telegraphic a correction for at least the Nasdaq. I'm not trying to read too much into a few cents' worth of correction following a week-long rally, but this remains a dangerous area for long positions. As shorts learned today, it remains dangerous for them too.

The lower trendline on the bear flag is already in play, possibly another sign of things-to-come for the other indices. A break below 33.75 could get the fireworks started, as the shorter and longer cycles are lined up bearishly at current levels. Bulls need stops, and bears need patience until that level is broken. Given the number of false signals we've been seeing recently, they'll need stops as well as patience.

20 day 30 minute chart of the QQQ

For tomorrow, traders will be watching support under the QQQ and Nasdaq futures for a heads-up regarding the broader indices. A pullback here would not be bearish, but a lower high on the bounce from that pullback would be. See you at the bell!

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