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Lights On But Nobody Home

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The SPX printed a new year high Friday above 1098, closing higher by 1.85 at 1095.89, while the Dow closed higher by 19.48 at 10324.67 and the Nasdaq +3.91 at 1973.14. Volume was at the non- existent end of light, with 357M NYSE shares and 536M Nasdaq shares traded.

The indices had a great week, considering the mad-cow outbreak, terror threats, Parmalat bankruptcy and overall geopolitical malaise. The Dow added .5%, the SPX .7% and the Nasdaq 1.1%, bringing their year-to-date gains to 23.8%, 24.6% and 47.7% respectively.

The volatility indices remained low, optimism remained high, and the Dow and SPX alternated pushing toward new highs as the Nasdaq lagged.

Weekly COMPX candles

The COMPX closing print at 1973 is just below the now broken rising wedge support line, the first closing break of that line since the March lows. This break should be the start of a significant correction projecting back to the March lows, but again, the weekly close was still higher. The light volume makes the weekly of dubious significance in any event, and a break back above 1980-85 should repair the damage. However, with the oscillators on sell signals following a long, drawn out bearish divergence, any further weakness will be preliminary confirmation that we have seen the top of the rally.

Weekly INDU candles

The Dow has been a veritable wrench in the technical works, and the positive close this week left a doji bottom at the now- vanquished upper wedge resistance line. This level is now support at 10200, and the weekly cycle oscillators, still on weakening bearish divergences, actually ticked up within overbought territory. Any further strength will set them to trending bullishly. For months, these oscillators have been telegraphing a bearish end to this rising bear wedge. They still are, but the bulls are close to turning it around.

Daily OEX candles

Turning to our primary trading vehicles, the OEX added .77 on Friday to close at 542.78. The rising channel resistance line was not touched on this latest upleg, and the daily closing print, a gravestone doji, suggests that it won't be. The daily cycle oscillators are configured as bearishly as one could want without actually printing sell signals and any weakness on Monday, however mild, will be sufficient to kick off the long awaited correction. With the weekly cycles very extended to the upside, I expect the pullback here to have solid downside amplitude. First support is at 535, but first significant price confluence is way below at 529, followed by 525.

20 day 30 minute chart of the OEX

Note that the rollover depicted on the 30 minute chart is not as pronounced as it appears, because Prophetcharts has left in the Wednesday gap. The uptrend is still failing, but it's not as extended as it looks. Nevertheless, the 30 minute cycle oscillators are printing a strong bearish divergence, and suggest that the next move will be lower. A break below 541 should get the ball rolling.

Daily QQQ candles

The daily QQQ has become a veritable dog's breakfast, appearing to be resolving itself within a bullish rising triangle. However, the bearish oscillator divergences don't mesh with that interpretation, while the pattern of rising lows does. That said, this week has left a series of doji tops at 36, which is looking like an electric fence. A sustained break above that level targets 36.20 as the bears' last stand, above which the bulls should break into a victory sprint. The daily cycle oscillators are weakening, however, and any further weakness should kick off the next daily cycle downphase.

20 day 30 minute chart of the QQQ

QQQ broke below rising wedge support, even allowing for the horizontal chart gap from Wednesday. The 30 minute cycle oscillator gave us a bearish divergence here as well, but the downphase is well advanced, leading me to wonder if there isn't one last 30 minute upphase left in the weakening daily cycle upphase. The resistance levels discussed above are the numbers to watch, and the bearish interpretation requires that 36.20 not be exceeded.

Best holiday wishes, and we'll see you on Monday.

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