Bulls and bears came nose-to-nose this week, and it wasn't pretty. Fear, notably absent last week, returned with the VXO making all the way up to 19.89 as of Friday's close, QQV 26.95 and VXN 29.08. The tape gave both sides of the market cause for cheer.
Volatility was way up this week, and those sub-17 VXO readings faded quickly into the rearview mirror. The VXN made it back above 30 on Thursday, the VXO above 20. These are still laughably low volatility levels, and while the cycles don't rule out the possibility of even a retest of the rally highs, it appears clear that all will not go according to the bullish plan. No matter how much the likes of Ruckheyser may wink and insinuate, this is and continues to be one very toppy market for equities, and the lessons of 1999-2000 are still with many of us.
The Dow advanced 0.1% or 9.1 points to close at 9628 on Friday, the S&P 500 +.2% or 1.63 to close at 1035.28, and the Naz added .6% or 11.96 to close at 1893. For the week, the Dow and S&P were down 1.4% each, the Nasdaq -1.9%. For the year, the Dow is up 15.4%, the S&P 17.7%, and the Naz 41.8%. The decline for this week compounded that last week to cause some significant technical damage on the charts we've been following:
Weekly COMPX candles
The apparently endless weekly top gave us some confirmation this week, with a sell signal printed on the 10 week stochastic and Macd. But the break of the rising bear wedge trendline, so long awaited, was the real news. This is the first break of that rising trendline since March '03, and brings into play our downside projection of 1270.
That said, the price trend is still obviously higher, but traders will want to see the rising trendline regained before taking aggressive bullish bets. A return to the scene of the crime will see resistance at 1930 tested, which is the current level of the trendline.
Weekly INDU candles
We got the same sell signal and trendline breajk on the Dow, with 9750 the current level of trendline resistance. This break implies a trip to the March lows, ultimately, but we can be sure that it will be a fascinating journey in the meantime. Once again, caution is warranted on this long timeframe, but this week was unquestionably a victory for bears.
Daily OEX candles
We approach the daily charts from the perspective of the weekly downphase now in progress and the first bullish blood now drawn on a closing basis. On the day charts, we saw the OEX hold trendline support above 510, and while we're a long way from the highs at 525, the daily cycle downphase achieved poor price traction this week, exhausting much of its energy without being able to crack 510. If 510 holds next week, I expect to see a new upphase on the daily cycle oscillator.
Such implies a possible retest of the rally highs- the top of that daily cycle upphase will tell us volumes about the future of this year's rally. If the upphase fails from here, 500 is the next support to watch. If it bounces and fails at a lower high, then the weekly downphase is dominating and 500 should be the next significant support. If it makes a higher high, the weekly downphase could abort. I consider this latter scenario to be the least likely of the three.
20 day 30 minute chart of the OEX
The 30 minute chart shows the wide swings of the past two weeks, and the persistence of 510 support. It looks vaguely like a head and shoulders-esque topping formation, neckline either at 510, 512 or 516. In any event, the 30 minute chart oscillators he gave us bullish divergences this week, and commenced an upphase on the move off the Friday morning low. A break back above 515 will set up a possible bull wedge breakout targeting the rally high just above 525. However, the cycle configuration is such that I expect 515 to find significant resistance and the move could well fail there. Next week will tell the story.
Daily QQQ candles
The Qubes look a lot worse than the OEX on a daily basis, with the rising trendline decisively broken. 33.60 is key support under this move, 35 now resistance at the "scene of the crime". The daily cycles look bottomy here, and as with the OEX, the next upphase, if it arrives on time, will tell us all we need to know about this rally. I expect any real bounce here to fail from a lower high, and that failure should be an ideal place for QQQ shorts to enter as it will represent the top of the daily cycle, failing in gear with the weekly downphase.
20 day 30 minute chart of the QQQ
The 30 minute QQQ is also sporting a bullish divergence, with a higher oscillator low against lower price lows. Barring any weekend disasters, the next move should be to the upside, and if so, we'll have a bull wedge breakout printed. 34.60-34.80 is the next major confluence zone, and it should coincide with a 30 minute cycle top. If that resistance doesn't hold, I expect the daily cycles to turn back up, and the showdown between bulls and bears will be on.
I expect the bullish raving to reach a crescendo at the top of the next daily cycle upphase if one kicks off next week. Things always look brightest at the top, and with the weekly cycle rolling over, it's very possible that we've either seen the top already, or that we'll see it on this next daily cycle upphase. Of course, this assumes that the market doesn't simply get sold on Monday, which is a distinct possibility. See you at the bell!