Ben Bernanke whispered sweet nothings in the markets' ears today, words of low interest rates for a long time to come. The promise of continued easy money gave equities and treasuries a lift, with the COMPX, INDU and SPX reaching new 52 week closing highs.
Daily Pivots (generated with a pivot algorithm and unverified):
Daily COMPX candles
There's nothing bearish about a higher close, and that's what we got today on the COMPX, which added 16 points on 1.8B shares' Volume. While the volume failed to keep up with yesterday's 2B+ shares, it was nevertheless a very solid day at what remains an indecisive area for the markets. This comment evokes memories of Spring 2000, in which we had day after day of record closes. While the 10 day stochastic appeared to be signaling a top yesterday, it grew more overbought today as the Macd extended its buy signal further. Points of caution on the daily chart are limited to upper Bollinger band resistance, although no band violation has yet occurred.
The more interesting chart is the shorter timeframe 30 minute candles, which reveal the COMPX in what or may not be an unhealthy uptrend. This is to say that the chart pattern appears to be either a bear flag or a bear wedge, both of which are drawn below. These patterns reveal an excess of bullish optimisim, as traders chase the price higher in an either narrowing (bear wedge) or constant (bear flag) range. As Bulkowski observes in the "Encyclopedia of Chart Patterns", bear wedges in his study tend to break to the downside 75% of the time. He current implied wedge target on a violation of the lower ascending trendline would be 1740 in this case, if the breakdown plays out in full.
30 minute 20 day chart of the COMPX
Daily INDU candles
The Dow crept higher as well, underperforming the Nasdaq but nevertheless closing at a new 52 week high on its 19 point gain. The closing surge managed to leave the VIX back below 20 on a closing basis, a level generally associated with market tops. Like the Nasdaq, the 30 minute chart below reveals a possible bear wedge formation persisting at upper rising trendline resistance. The advance today was sufficient to abort the downphase on the 300 minute stochastic long before it became oversold, which confirms the price uptrend. The two lower tendlines constitute primary and secondary support on any pullback, but note that neither has been touched this week.
20 day 30 minute chart of the INDU
Daily OEX candles
The ill-defined cycles caused by months of flat trading appear to be pulling themselves up into buy signals, as the price continues to advance. The 520 level implied by the possible-but-flawed reverse head and shoulders was not touched today, and as the 30 minute chart below reveals, it will take a significant push above trendline resistance in order to achieve it.
While fighting an uptrend is not my intent, the 30 minute chart looks ripe for a corrective pullback as noted in last night's Index Wrap. The Macd is not confirming any of this week's advance, which is a bearish divergence, and the low VIX within the context of a bearish ascending wedge formation makes a correction that much more likely. If, on the other hand, the upper tendlines in the 517.50 area fail, bears will want to be out of the way.
20 day 30 minute chart of the OEX
Daily QQQ candles
The QQQ's 4 cent pullback was a distant memory today, with a 43 cent gain to bring the Qubes to a new closing high. Like for the Nasdaq, the 10 day stochastic sell signal did not progress and is in the process of "undrawing" itself as oscillators are often wont to do. The upside move is a bear wedge failure, not the first we've seen this summer but nevertheless surprising. QQQ closed right at its high of the day, a bullish hammer portending higher prices at the open.
The 30 minute chart reveals trendline resistance in the 34.45 area within the context of the bear wedge drawn today. The range has narrowed to 34.05-34.45, and traders can hope for a break in one direction or another. As noted above, the bear wedge implies that the likelihood is to the downside, but we can let the price tell us where it wants to go from these up- and downside decision points.
20 day 30 minute chart of the QQQ
Futures were trading bullishly afterhours following INTC's post- bell guidance. Whether this carries through to tomorrow morning or not remains to be seen. As daytraders learned again today, narrow-range chop is unpleasant and tends to benefit only the broker, reeling in our commissions. We'll be watching support and resistance lines for a hopefully tradeable break. See you at the bell!