The week opened with a Sunday night upside explosion following a day's worth of "We got him" bytes, followed by a selloff that lasted the day, followed by a tentative bounce that erupted into hysterical buying on Thursday and Friday morning. The remainder of Friday was spent churning along near the recent top. 52 week highs were printed by the Dow and SPX, while the Nasdaq was the notable laggard.
The Dow gained 30 points or .3% on Friday, a 2.4% gain on the week and 23.2% for the year. The SPX was down .52 of a point on Friday, a 1.4% gain for the week and 23.7% gain for the year, while the Nasdaq dropped 5.16 points Friday or .3%, a .1% gain for the week and a 46.1% gain on the year.
The volatility indices provided plenty of action during this op- ex week, with the VXO crashing to new lows in the mid 14's on Thursday. The VIX printed similarly outrageous lows, while the QQV and VXN were merely very oversold. The exceptionally low volatility raises the question of whether a severe market correction is lurking behind the next sell program, or whether a new bull market is in progress. I do not believe that we are, but many no doubt will disagree.
Weekly COMPX candles
The weekly view of the Nasdaq shows the index holding above the lower rising wedge trendline by the skin of its teeth. For the past two weeks, we've had false breaks below it, always within the context of a negative oscillator divergence on the 10 week stochastic. By the same token, those doji hammers are bullish reversal candles along rising support, and so until the 1930 level is broken on a closing basis, the trend remains up. The oscillators are toped out and bending lower, but a clear, unequivocal, short-n-hold sell signal has yet to be given.
Weekly INDU candles
The weekly chart of the Dow, however, is an entirely different kettle of fish: wedge breakout or wedge fakeout? Throwover or bull? The week's strong break above the rising trendline we've been using for months can mean different things to different traders. It's either a breakout or it isn't, and that's the best we can conclude for now. The weekly oscillators ticked higher, trending in overbought, and while the Macd is no long diverging, the 10 week stochastic is still at a lower high than it was at in June. If next week is positive, then 10,450, followed by 10,600 is the next stop. I sold out of equities at Dow 10,600 in early 2002, and I never thought we'd see those levels again. It's only fitting that I raise the possibility of its occurring so soon thereafter.
Daily OEX candles
The daily chart of the OEX shows Friday's fractional pullback to close at 540.26. The sweeping rise along the top of the upper Bollinger band is most impressive and most due for a pullback. The daily cycle oscillators are overbought and running out of racetrack, but they're not in a downphase yet either. 535 is first support, and any pullback needs to break through that level in order to initiate a new downphase.
20 day 30 minute chart of the OEX
The 30 minute OEX has been accelerating to the upside in a rising channel for the past three weeks, and the exhaustion of more than half of the 30 minute cycle downphase on Friday for less than a 1 point correction is very bullish. However, the closing candle leaves the slight suggestion of the right side of a head and shoulders top, and for that reason, Monday's open will be crucial. Any further downside from the 30 minute downphase could trigger the head and shoulders breakdown to the 535-6 area, while more upside could abort the downphase and imply a test back above the 540 level.
Daily QQQ candles
QQQ has been much weaker than the OEX for the past two weeks, and for that reason the daily cycle is not only not toppy, but is in fact verging on a new upphase from a higher low. The lower rising support line has been in play far more than for the OEX, but it has held without serious challenge. 36 is Bollinger band and confluence resistance, and I don't expect to see it fall without a fight. 34.80 is downside support.
20 day 30 minute chart of the QQQ
QQQ is coiling into a neutral pennant, also sporting a remarkably week 30 minute cycle downphase. Another uptick on Monday morning could kick off a run to 35.80-36 resistance, while a move lower will challenge 35.20 support on the way to 34.80.
The cyclical picture is mixed, and it's at times like these that patience is a trader's best friend. A new rally from here should have good upside, while a breakdown should be good for a very substantial correction. With the weekly, daily and 30 minute cycles all in states of varying uncertainty following this epic op-ex week, it's far wiser to wait for support or resistance to fail before committing to a direction.
Happy holiday season to all, and we'll see you on Monday.