Option Investor
Index Wrap

Higher Highs

Printer friendly version

New closing highs for the indices brought the VIX to a new 52 week closing low below 19 as the markets grew more overbought. Every dip was bought, but bulls could not break away from what proved to be a tenacious intraday range.

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

Please note that I have not updated the weekly and monthly levels. Jeff Bailey returns tomorrow, and the Pivot Matrix will resume its regular schedule. Thank you for your patience.

Daily COMPX candles

The only news on the daily COMPX is that the relentless uptrend has finally caused the 10 day stochastic to begin trending in overbought. The cycle that it measures has now exceeded the time and breadth allotted to its upphase, but price continues to climb. How long it will persist is no longer answerable on this timeframe, and we look to other timeframes for clues. The longer 10 week stochastic on the weekly candles (not shown) is trending in overbought, and the 10 month stochastic on the monthly candles is now overbought but not yet rolling over.

Looking at the shorter cycles, we see that a downphase is now due following a bearish divergence on the Macd, within the broader context of a bearish ascending wedge. The wedge projects to 1740. Bulls are watching an upwardly trending market that is increasingly overbought. It is not, in my opinion, a buy at current levels, for the simple reason that north goes up forever, and on ever timeframe I follow, the market is overbought. It can continue higher, just as it has, but the odds do not favor it. A pullback is due, and the bounce from that pullback will tell us volumes about whether this is a new bull market, which I doubt, or another bear market rally.

30 minute 20 day chart of the COMPX

Daily INDU candles

The INDU found support right at the rising daily trendline, and the 10 day stochastic is headed back up after the shallowest of pullbacks, looking for a new up-phase from here. On the 30 minute candles below, the INDU is struggling with resistance at 9600, finding support from a higher low at 9500, and has next resistance within its bear wedge at 9620.

Note that the Macd on the 30 minute chart is topping from a much lower high, which is not bullish. However, until the lower trendline at 9500 gets taken out, we can expect the price to continue working its way higher. Extreme moves have a way of outlasting our expectations, and with the breadth and volatility levels seen today, I don't consider my choice of adjectives inappropriate.

20 day 30 minute chart of the INDU

Daily OEX candles

The OEX appears to have found a home above 512, and as with the INDU, the OEX' oscillators are looking for the next leg up from current levels. The bearish wedge on the 30 minute candles below is running out of racetrack, but given the gentleness of the rising slop and the room to run above the lower support line, the move could last longer than we hope before breaking out.

Note that these are bearish formations within an overbought, trending market. We've seen more than our fair share of upside bear wedge failures through this rally, and nothing rules out the possibility of its occurring here. However, bulls need to evaluate the likelihood of such a move. The odds do not favor it, but that doesn't mean that it cannot happen. Bears need caution as much as bulls need stops.

20 day 30 minute chart of the OEX

Daily QQQ candles

We have the same setup on the Qubes, but with the bearish Macd divergence more pronounced on the 30 minute chart.

20 day 30 minute chart of the QQQ

The markets are continuing with their ongoing trend. As we learned in the spring of 2000, one rides a trend until it ends. That said, investing on the basis of the "Greater Fool Theory" is tricky business, and must be done with full knowledge of one's goals and risks. I consider the risk to the downside to far exceed the upside potential of current levels. If the Dow clears 9600, there's a greeting party of stranded longs at 9800-10200, a range about which I recall Jim writing in fall 2001. On the other hand, those toppy oscillators have run up from levels far below those currently trading. Whether you agree with my bias or not, the trading strategy remains the same. One last time: stops for bulls, caution (and tight stops) for bears.

Index Wrap Archives