Another high volume day brought the Nasdaq up 44 points for a 2.42% gain, while the Dow Industrials added .89% or 84 points, .94% or 9.6 points for the S&P 500. The move helped the Nasdaq, which had lagged the Dow and S&P on their rallies off the Wednesday low, recover some of its lost ground.
It was a day that finished less bullishly than it began, with the indices trying unsuccessfully to tag their 52 week highs. Nevertheless, volume was strong overall, with 1.9B NYSE shares and 2B Nasdaq shares changing hands. Stocks advanced throughout the day, pulling back toward the close.
Weekly COMPX candles
This week began on a bleak note for bulls, following last week's steep decline into Wednesday. Despite the significant advance to reverse most of those losses, this week nevertheless had a lower low and a lower high. That said, the uptrend from the March lows was never seriously challenged, and while the weekly chart oscillators are on the cusp of a downphase, with the 10 week stochastic showing a divergent pattern of lower highs since July, the price remains firm above 1760.
Daily COMPX candles
Wednesday's upside reversal came right on time, and Friday's gap up brings the Nasdaq to within sight of its year highs set two weeks ago. Note that while the strong move off the lower rising trendline retraced most of the decline from the September high, the oscillators remain within their ongoing downphases. As the longer cycle on the weekly chart is topped out and tentatively rolling over, the ongoing daily chart downphase is aligned with the longer cycle. While a higher high for the year is not impossible, the onus is on bulls to generate sufficient countertrend momentum to cause these longer cycle oscillators to begin trending in overbought territory.
The failure from a lower high on Friday despite the overwhelming bullish consensus and frantic short covering adds to the bulls' burden, as double and triple top resistance begins to build at current levels. For the moment, however, it's easiest to trade support and resistance and follow the intraday oscillators, which have been performing reasonably well as seen below in our OEX and QQQ discussions. On the Nasdaq, 1800 is first trendline support on the daily chart, and long term bears will want to see 1760 support fail before allowing themselves to relax. To the upside, the rally highs are the level against which both bulls and bears were selling on Friday.
Weekly INDU candles
The INDU has been printing a more gentle rollover than that of the COMPX on the weekly chart, with the stochastic divergence less pronounced than it is on the COMPX. The week gave us a lower low and lower high, but the nascent downphase on these longer cycle oscillators remains. As noted on the COMPX, a minor break above the year highs would not on its own reverse this downward bias on the oscillators as the uptrend has been weakening for months.
Daily INDU candles
Seen on the daily INDU chart, the gains since Wednesday amounted to a retest of the broken rising wedge trendline from the March lows, otherwise known as a "return to the scene of the crime rally." I've indicated the various oscillator divergences, and, in the case of the Macd, we've been seeing lower oscillator highs since June. While these signals do not provide specific timing cues, they do tell us that the current downphase in the daily chart oscillators is for real, and bulls need to be careful in this timeframe. A sustained break above 9700 will be necessary to begin changing the technical picture. 9250 support is the first level bears need to defend below.
That's the broader context. I've detailed the daily and intraday timeframes for trading purposes below:
Daily OEX candles
The OEX daily chart shows a successful bull wedge breakout printed this week, with the daily chart oscillators printing bullish kisses from oversold territory. Note that the OEX and NDX (or its tracking stock, the QQQ) tend to lead the broader indices. Here we see that both the OEX and QQQ became more oversold than did the broader markets, and the bullish kiss is printing from just above oversold territory. If it completes into a full oscillator upphase, it will run into resistance against the topping weekly oscillators, but could conceivably pack enough punch to cause the longer cycle to begin trending. It's for this reason that the 525 resistance level is crucial. If it fails, the picture will begin to look substantially more promising for a continuation of this year's rally.
20 day 30 minute chart of the OEX
On the shorter period 30 minute chart, we see the steep rise off the Wednesday lows in the form of a megaphone formation. The oscillator uptrend is intact and implies a continuation of the pattern of higher lows, but the megaphone or "bulloney bullhorn" is not generally a sustainable pattern and implies a downside break. Combined with the toppy oscillators in this shorter timeframe, and I'm watching 516 support closely for the first sign of a change in trend.
Tying it all together, we have the weekly cycles trying to roll over, the daily bottoming, and the 30 minute topping. This suggests a test of downside support at 516, followed by a possible bounce to challenge the day high of 520m followed by the rally high of 523, or the upper trendline around 525. A failure can come at any of those levels. If the upper resistance at 525 fails, then my next Market Wrap will sound considerably more bullish than this, as we'll have a new daily oscillator upphase and potentially trending weekly oscillator phase underway.
Daily QQQ candles
We see the same setup on QQQ, but the bullish kisses aren't as well-developed as on the OEX. Nevertheless, the cycle picture is the same, with the longer weekly cycles trying to pull lower, the daily possibly bottoming, and the 30 minute topping. The oscillators imply a trip to 33.60-70, and then a bounce attempt. Above the 52 week high, it will appear that the daily chart oscillators are dominant, in which case the picture becomes more bullish. For now, however, the outcome of the 30 minute oscillator downphase just commencing is key.
20 day 30 minute chart of the QQQ
Next week will be significant as it begins within sight of a failed attempt to gain the year highs. I expect a trendline failure in either direction kick off a quick continuation move, as either bulls or bears run for cover. Respect your timeframe, be nimble, and we'll see you in the Market Monitor.