Friday gave us a trading range tight enough to be difficult to even scalp. The Dow added 14.51 points to close at 9801.12, the Nasdaq dropped .48 to close at 1932.21, and the SPX added 3.77 to 1050.71. It was a session in which traders counted the decimals.
Volume was surprisingly strong given the lack of range, with 1.86B Nasdaq and 1.44B NYSE shares changing hands. The VXO (OEX volatility, the "old" VIX) went out at 17.15, down .35, with the VIX (SPX volatility index) dropped .23 to close at 16.1. There were some extraordinary put to call readings toward the close, with the ratio spiking to 1.13 at 2PM EST and remaining high for the remainder of the session. This was distinct from the sub-.50 readings earlier in the week.
For the week, the Dow added 2.3%, with a 5.2% gain for the month and a 17.5% gain year to date. The SPX is up 2.1% for the week, 5% for the month and 19.4% for the year, while the Nasdaq added 3.6% for the week, 7.1% for the month and 44.7% for the year.
This was a difficult week for most traders, both bearish and bullish alike, with the more ignorant blissfully aware of only the rising prices. The volatility indices have reached and are continuing to sustain levels from which even the most technically challenged are on guard for a pullback, and combined with the various oscillator divergences that dominated most of the week, there's good reason to expect that pullback to be serious. The lack of upside followthrough to the blowout, credibility-testing GDP number was bearish in the extreme, and yet price simply would not retreat. By the same token, there was an absence of short covering hysteria, no sustained vertical flagpole rallies. I can recall seeing rallies begin this year that blew through so many resistance levels so quickly as to render the numbers meaningless. With this many traders eyeing the low VXO and the intact-52 week highs, there have to plenty shorting the market, but so far, no short covering rallies either.
The market feels as though most had priced in a great GDP number, and sheer well- placed disbelief was enough to prevent a rally on the news. There is no shortage of bad news in the markets either, and it appears for the moment that all are waiting for the next move before placing their bets. Perhaps the lack of movement on Friday was caused by support from mutual fund window-dressing. In any event, Monday is shaping up to be a key day, as our examination of the charts will show.
Weekly COMPX candles
The weekly Nasdaq shows a doji for the latest week below the 38.2% Fibonacci resistance line, always within the now-interminable rising wedge off the March 2003 low. The bearish divergence on the 10 week stochastic remains in play and portends a drop into a bear wedge breakdown, with the Macd topped out and on the verge of a sell signal. This is a toppy market, but it remains disturbingly firm at current levels.
Weekly INDU candles
The Dow shows the same characteristics, with the oscillators maxxed out and diverging within a typically bearish price pattern. 9600 is the key support on the Dow, coinciding with 1825 on the Nasdaq.
Daily OEX candles
The daily OEX candles show Friday's session at the apex of a pennant within the broad rising summer's range. The bounce from the lower trendline this week was sufficient to turn the daily chart oscillators to a preliminary buy signal, and if it sticks, OEX bulls will have an aborted downphase from a higher low than the previous daily cycle trough. 519-523 appears as the critical range in this timeframe.
20 day 30 minute chart of the OEX
Zooming in to the 30 minute candles we see the bounce off the lows last week taking on another bear wedge pattern. The cycles on this timeframe have become juxtaposed by the sideways drift, with the Macd bearishly diverging from the uptrending stochastic. To my mind, the nascent upphase on the daily chart is key, and if Monday sees a positive close, the daily upphase will get confirmed. If the day closes lower, the downphase should reassert itself, and the 30 minute chart downphase will break the bear wedge, bringing in a wedge target of 506. In the meantime, with the stochastic and Macd fighting it out on the intraday chart, there wasn't much to be done on Friday. Monday should break the deadlock.
Daily QQQ candles
We have the same picture on the Qubes, with Friday's 19 cent loss absorbed by the tentative buy signal on the daily chart oscillators. On the 30 minute chart below, we have the oscillators in gear to the downside, unlike on the OEX, but with very little price traction. 35.05 is a potential head and shoulders neckline, with resistance above at 35.60. A decisive break either higher or lower will decide the fate of the nascent upphase on the daily oscillator above.
20 day 30 minute chart of the QQQ
With the bearish divergence on the weekly cycles and indecisive downphases on the daily and 30 minute charts and 52 week highs looming overhead, Monday will be a critical day. Any buying could touch off a short covering rally, while selling will cause bulls to protect profits and encourage bears to press. The oscillators that have served us so well are waiting for the next move, and the key will be to remain nimble and open to either outcome. See you at the bell!