Equities had a positive week, pulling back from the brink of what was shaping up to be the beginning of the end for bulls last week. The Nasdaq added 66.40 points, with a gain of 6.95 on Friday to close at 1960.26. The Dow added 2.89 to complete a 153 point weekly gain, closing at 9782.46, and the SPX dropped .25, finishing the week higher by 22.92 at 1058.20.
Most noteworthy during the abbreviated trading week was the plunge in volatility, with the VXO doing a Steve-McQueen u-turn at 20.84 to finish at 16.94 on Friday, with a low of 15.81 on Wednesday, closing below 16 on that day. This represented the lowest VXO (the old VIX) print in as many as years as I can chart, and represents a higher degree of complacency than has been seen at any of the significant market tops since 1998. Given that all of the indices are significantly below March 2000 levels, but optimism and complacency are well beyond levels measured at that time, one can expect that we are either near or at a significant market top now. However, the markets did not decline on Friday despite an opening dip, and as with any mania, we should be prepared for the possibility that this one could persist longer or farther than we currently expect.
The synchronous sell signals we saw last week resulted in some impressive bouts of selling, but no significant technical damage was done, with all of the indices finishing in the green for the week. The Amex Goldbugs Index (HUI) rose by better than 5% for the week, reaching an alltime high and closing at 248.43.
Weekly COMPX candles
The weekly view of the Nasdaq shows this week's recovery within the broader bearish ascending wedge off the March lows. The true test for the bulls will be the 2000 level, which has so far held back the advance and now coincides with trendline resistance from the failure two weeks ago. The bearish oscillator divergence is still intact, and the Nasdaq is still trading on a weekly sell signal. However, these oscillators have been trending for weeks, and while it is clear that selling pressure is building, the primary price trend since March remains higher.
Weekly INDU candles
I've left the minor bear wedge support line undrawn on the weekly INDU chart, but the setup is the same. I expect that the real battle will take place between 9820-9850, with a last hurrah at 9900 before the sprint to 10,000. The market's advance this week looks good as a first step, but it took place on light volume in a short period of time, and drilled the volatility measures down to lows not seen in many years. I would be amazed to see the VXO down at 14 or the Dow at 10,000, but this year has been one of constant amazement. Suffice it to say that the bulls have their work cut out for them for the next 200 points of upside.
Daily OEX candles
The OEX dropped .47 to close at 520.74 on Friday. This week's trade saw the OEX clawing its way back up along the broken trendline, but each attempt was quickly rebuffed. Nevertheless, the daily cycle oscillators left off on very weak and early buy signals. Once again, there's reason to be dubious of buy signals generated on a closing VXO print below 16, but the price is the price. Any upside above 521 implies a test of resistance up to 525, and I don't expect that level to fall easily, if at all. Nevertheless, the daily cycle oscillators are on early buy signals, and any price advance from here will give them confirmation. Longer term traders looking to establish long positions might want to wait for the test of the 52 week high before committing fully. I personally have great difficulty buying, even to cover shorts, with the VXO as low as its been for most of the week.
20 day 30 minute chart of the OEX
The 30 minute OEX candles show this week's rise in a bearish ascending wedge. A break of the lower trendline confirmed with a break of 520 implies a potential target of 510. The 30 minute cycle oscillators are on sell signals from overbought territory, and lower oscillator high compared with the higher price high forms a bearish divergence. On this basis, I expect to see selling on Monday morning, but the uncertainty on the daily cycle oscillators above confuse the issue. A move below 520 would go a long way toward emboldening the bears.
Daily QQQ candles
The Qubes gained 1 cent to close at 35.35, right below the start of resistance up to the 52 week high. A failure below 35 would look a lot like a head and shoulders top with an admittedly short head, neckline at 33.50. As on the OEX, the daily cycle oscillators could go either way from here, but remain closer to the bottom of their channel than to the top. A rollover from here brings the head and shoulders scenario into play and would start the 10 day stochastic trending in oversold. A bounce will have trouble up to 36, above which a short covering rally could kick off.
20 day 30 minute chart of the QQQ
I've added the descending upper trendline to illustrate the more bullish side of the analysis, as unlikely as I take it to be. If the bulls can clear 35.60, the possibility of a reverse head and shoulders breakout exists, to be tested first at 36 and then 36.20. However, the 30 minute cycle oscillators are topping out, and rising resistance has held all week in a possible bear wedge. A break of the lower trendline from here would turn down the 300 minute stochastic and complete a bearish oscillator divergence equivalent to that on the 30 minute OEX.
Putting it all together, we have the weekly cycles on a bearish divergence and tenuous sell signal, the daily trying to start an upphase, and the 30 minute commencing a downphase on the OEX and about to do so on the QQQ. The daily chart is the wildcard here, and traders should be patient until confident that the uncertainty has been resolved, either to the upside or the down.