Friday saw the indices extend their losses, with the Dow dropping 30, the S&P 6.4 and the Nasdaq 25 points to finish their first negative week in one month and a half. Volume expanded on Wednesday and Thursday, the days which saw the strongest selling, but was lighter on Friday ahead of the Jewish holidays.
2 year weekly chart of the COMPX
Viewed on the weekly (above) and daily candles (below), the technical damage wrought by this week's selling is not particularly catastrophic. If anything, the selling was more surprising than anything else, for the simple reason that there hasn't been any for so many consecutive weeks. The move did not challenge the broader rising trendlines on either the weekly or the daily Nasdaq charts, though it did give oscillator sell signals on the longer timeframes.
On the weekly, we see a bearish stochastic divergence since June, with the 10 week stochastic declining against advances in weekly price. The selloff this week gave us a fresh stochastic sell signal on that oscillator, and the laggier Macd is not far behind. Trendline support between 1760-70, but the oscillators indicate that a deeper move could occur. If that lower trendline support breaks, the bear wedge targets a possible move to 1260.
Note that the 1760 area coincides with those levels on the daily chart below. The oscillators on this shorter daily timeframe are also in gear to the downside, and it's only the intraday 30 minute chart oscillators (shown for our trading vehicles, the OEX and QQQ below) that give reason to expect a bounce. However, 1760 is 32 points below Friday's Nasdaq close, and we can expect a battle in that area if the bulls do not appear sooner.
Daily COMPX candles
2 year weekly chart of the INDU
This week's selling hurt the Dow more than it did the Nasdaq, as can be seen in the trendline violations on the daily and weekly Dow charts. On the weekly above, this week caused a clear wedge break, suggesting a possible wedge target of 7400, while the daily wedge breaks suggest first 9000, followed by possible support at 8300. Again, the bearish oscillator divergence on the weekly and the coincident daily and weekly cycle downphases should have bulls looking to secure their profits and bears looking for short entries on every bounce in the timeframes they trade. That said, there are bounces to be expected. 9275 Dow is the start of significant support, and as we will see on the shorter term views of the OEX and QQQ, there's already buying pressure building from the declines we saw this week.
Daily INDU candles
Daily OEX candles
The OEX dropped 3 points on Friday to close at 499, one point above Fibonacci support at 498. The VXO (the old VIX, measuring option volatility for the OEX) closed higher by .38 at 23.8 after being below 20 last week. As we saw on the daily COMPX and INDU charts, the 10 day stochastic is in a full bear roll, confirmed by the sharp sell signal on the Macd. With the weekly oscillators (not shown) rolling over as well, investors in this timeframe are in 'short and hold' mode, having gotten short earlier this week.
Those trading shorter timeframes were covering today and/or looking to go long on a dip to ride the bounce implied by the 30 minute chart oscillators below. As we see, the selling this week set a pattern of lower highs in price as well as on the oscillators. However, the most recent downphase today ended prematurely on the 300 minute stochastic, suggesting at least some type of bounce to begin from current levels. However, the upper descending bull wedge trendline capped every attempt on the part of bulls to mount a charge, and the upphase could not get beyond a sideways drift.
As the longer cycles are headed south, I expect the pattern of lower highs on the 30 minute chart oscillators to continue. This should reflect itself in lower price highs as well. Traders can buy the cycle bottoms and sell the tops at resistance, using tight stops on opening positions. So far, the overall decline has been relatively orderly.
20 day 30 minute chart of the OEX
Daily QQQ candles
On the Qubes, we see the same picture presented on the daily and 30 minute charts. The bear wedge target on this move is 30.0, which lines up with Fibonacci support as well. Note how well the Fibonacci retracement captures the different price confluence zones in both directions. Like the OEX, QQQ closed Friday right at support.
Like the VXO, the QQV made a 10% advance this week, showing a clear spike in options volatility (often likened to 'fear') as price declined. The Friday bounce attempt was weaker than that on the OEX, which I would tend to view as a bearish sign. Nevertheless, the easy part of this decline has been seen, and bulls and bears alike are on the alert for at least a short term bounce from current levels. Look for resistance at 32.80, followed by 33, then 33.35.
20 day 30 minute chart of the QQQ
For next week, traders will want to keep an open mind and stay nimble. While my analysis confirms my gut feeling, the Spring Rally and its summer followthrough contained a number of shocking moves that defied analysis and caught bear and bulls by surprise. For this reason, plan your trade and trade your plan, but don't get married to an idea, and use stops always. See you at the bell!