A wide ranging session completed a wide ranging week, with the Dow falling 133 points or 1.3% to close at 10,458.89, the SPX dropping 10 points or .9% to close at 1121.86, and the Nasdaq losing 13.33 points or .6% to close at 2,086. For the week, the Dow was up .5%, the SPX 1.2% and the Nasdaq 4%.
The steady grind higher saw new record lows in the Nasdaq-based volatility indices, with the QQV (NDX volatility) reaching the low 19's and the VXN (Nasdaq volatility) the low 21's. On Friday, the Nasdaq was the strongest index, and the afternoon selloff saw the QQV rise to close higher by 6.82% at 21.14 while the VXN rose 5.12% to 23.01. Compare this for the VXO (OEX volatility), which rose 10.24% to close at 15.94, and the VIX (SPX volatility) up 7.3%. Volatility tends move inversely to price in a rather close relationship, and the record lows printed for the Nasdaq caught a great many bears off guard. Amid stories of central bank intervention (notably, the Bank of Japan) and multiyear lows on the US Dollar Index, bears were caught in short squeezes that brought new rally highs across the indices.
If the past year has taught technical traders anything, it has been that trends continue until they end, and that bear wedges can carry for a long, long time. The rallies this week saw the upper rising wedge resistance on the weekly Nasdaq tested but not broken on a closing basis, while the Dow wedge remains broken to the upside from the December leg of the rally.
Weekly COMPX candles
The weekly chart of the Nasdaq shows rising wedge trendline support coinciding with price confluence at the psychologically- significant 2000 level. Weekly Bollinger band resistance is at 2052, and remains violated as of Friday. This indicator is telling us the obvious, that a correction is due. A retracement to 2000 would be shallow correction, and support in the 1880-1900 area should be firm. The important question is whether the trending oscillators on this timeframe will commence an actual downphase or merely continue to fade hesitantly lower, teasing us with a seemingly endless bearish divergence as price rises. A close below 2000 would give us a clear sell signal on this timeframe, and would imply a downward bias for at least several weeks.
Weekly INDU candles
The 10 week stochastic on the Dow left off on a bearish kiss, and a down week next week would be sufficient to generate a sell signal on this timeframe. Note the trendline support at the apex of the failed bear wedge at 10200 and 9950. Bears should not be thinking anything more than "correction" above these levels. As traders, profits are profits, and buying support or selling resistance is a matter of indifference in pursuing our goal. However, it helps to be on the right side of the market, and if the weekly cycle rolls over, that side should be down. Next week is shaping up to be key on that basis.
Daily OEX candles
The OEX dropped 1.12% or 6.33 points to close at 556.55 on Friday. The move left a bearish engulfing print below Thursday's low, with heavy NYSE volume following heavy volume at the year high on Thursday. The daily cycle gave its first tentative indication of rolling over. First trendline support lines up with Fibonacci support at 546. Given the test of Bollinger resistance through the duration of the throwover above the channel resistance line, even the most bullish OEX trader would not be surprised by a revisit to 546. We will have to evaluate the daily cycle oscillators at that level, but if the OEX bounces from there, then I'll be expecting higher highs for the year. Support below 546 is at 535, 528 and 525.
20 day 30 minute chart of the OEX
The 30 minute cycle oscillator rolled over from a lower high against Thursday's closing spike high, and this bearish divergence usually precedes a sharp drop. With the S&P futures closing at their session low on Friday, we can expect selling to continue on Monday. By the time the OEX reaches rising trendline support at 555, the 30 minute cycle should be at or near oversold territory, and a bounce will be likely. If that bounce occurs, then bears will look for a lower high to confirm the daily cycle downturn. If it simply falls through 555, then bulls have a potential problem and will look for next support in that 546 area.
Daily QQQ candles
A bad intraday tick has sliced up the daily QQQ charts. QQQ lost 14.9 cents or .39% and closed at 37.83 on Friday. Support is now at 37.10, and given the rollover in the 10 day stochastic, a down Monday will confirm the new daily cycle downphase on QQQ. Below 37.10, support is at 36.80, 36.60, and 36.
20 day 30 minute chart of the QQQ
The afternoon selloff on Friday caused a sharp break on the 30 minute chart oscillators from deep within oversold, but the rising trend since mid-December has been very strong. This week saw much heavier volume than was seen for the last two weeks of December, and so long as the bulls hold 36, the uptrend should be safe. Below that level, the lighter support from December could result in an acceleration of the selling.