The indices broke to higher highs this week, despite Friday's light pullback. The Nasdaq dropped 3.85 points to close at 1905, the Dow lost 14.31 to close t 9644, and the S&P 500 dropped 3.28 to close at 1036.
Volume on Friday was higher than it felt, with 1.9B Nasdaq shares changing hands and 1.72B NYSE shares traded. Sellers were present for a change, generating a closing TRIN of 1.42 and TRIN.NQ of 1.19 despite the renewed complacency reflected in the volatility indices, leaving the VIX -.23 at 19.07, VXN -.01 at 29.74 and the QQV -2.11 at 24.93.
As we've been squinting at intraday and multiday charts for what's proven to be a very long week, I've zoomed out to the weekly candles to review the Nasdaq and SPX.
Weekly COMPX candles
The COMPX chart is surprising from a bearish perspective. I've been hearing anecdotally that short interest on QQQ remains near record high, each short squeeze blamed for what feels like increasingly unsustainable advances. Yet the 4 year weekly chart doesn't confirm it, with the COMPX having retraced not even 23.6% off its lows measured from the alltime high in Spring 2000. While the move off the March 2003 lows has felt and looks like a nearly straight line up, the oscillators are only beginning to trend in overbought. A Fibonacci target of 2100 COMPX is not out of the question, though to achieve it without a prior downphase on the 10 week stochastic would be surprising.
Weekly SPX candles
The weekly SPX has gone relatively further, approaching its 38.2% Fibonacci resistance in the 1060 area. The oscillators are trying to start a downphase within the context of what appears as a clear bearish ascending wedge projecting to the March 2003 lows. Bears who have been shorting and getting skinned this week can consider waiting for a break below 1000 or try to catch a failure near 1060 with tight stops.
The bigger picture affirms that this remains a cyclical rally secular within a secular decline, a bear market rally. Bulls will argue that every bull market begins as a bear market rally, which is true, but I don't see how we're there yet.
On to the trading vehicles:
Daily OEX candles
The OEX daily remains a difficult chart to read, for the simple reason that it spent the better part of the summer doing nothing in a choppy range between 485 and 510. That chop creates a potential reverse head and shoulders pattern with a neckline around 511. I say "potential" because reverse head and shoulders belong at the bottom of a decline, and not near the top of an advance. Nevertheless, the formation projects to an upside target near 530, 10 points above Friday's close. That said, the better defined bearish ascending wedge should cap the advance near 525, with support again at 511. The daily chart oscillators remain toppy, and while further upside is not out of the question, risk-reward favors lower prices.
20 day 30 minute chart of the OEX
The 30 minute chart of the OEX shows a bounce on schedule at the lower bear wedge trendline, lining up with a lower low on the 300 minute stochastic. The bounce projects to trendline resistance just above 525, and if the bulls can keep opex unwinding on Monday from taking out the lower rising trendline at 520, they have a good chance of seeing it.
Daily QQQ candles
The Qubes bounced from their lower wedge trendline on the daily chart, and failed at the lower of the two competing upper rising trendlines. A downphase aborted very early in its run this week, catching bears by surprise on what appeared to be a bear wedge breakdown. The counter- cyclical bounce was either op-ex related or not, and again, we'll find out Monday, Tuesday at the latest, whether the bounce was genuine or not. For call writers and put buyers of September contracts, that answer will be of merely academic interest.
20 day 30 minute chart of the QQQ
The 30 minute chart of the NQ reveals the same trendline bounce as we see on the OEX. The stochastic upphase underway needs to be confirmed by a Macd buy signal, but any further upside on Monday will provide it. The trend remains higher within this ongoing bear wedge until the lower support line gets taken out.
For next week, op-ex unwinding will be critical. If the 30 minute chart oscillator upphases are going to fail, it will occur Monday as option- related positions get squared and portfolios adjusted. If the markets don't drop, it's reasonable to expect this week's highs to be tested.