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Index Wrap

Down week

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The major averages closed lightly negative on Friday, capping off the second consecutive week of losses for equities. The Dow lost 22.22 to close at 10,488.07, the SPX lost 2.98 to close at 1131.13, and the Nasdaq dropped 2.08 to close at 2066.15.

For the week, the Dow fell 0.8%, the SPX .9% and the Nasdaq 2.7%. Notwithstanding these losses, all 3 indices are in the green for the year today, the Dow +0.4% for the month, the SPX +2% and the Naz +3%. For the past 52 weeks, it's +29.3% for the Dow, +30.9% for the SPX and +52.1% for the Naz.

As discussed in the Futures Monitor, the big news was the FOMC announcement that struck fear into the hears of dollar bears/ equity-bond-commodity bulls, and the trading following the midweek drop has uncertain and rangebound. Volatility boomed higher, and the Dow Transports closed the week below 3,000, dropping 2.9% or 86.04 to close at 2,885.95. While the FOMC drop buried the intraday oscillators in oversold, it precipated only the beginnings of sell signals on the longer timeframes. The OEX volatility index, the VXO, finished the week 2 or more than 10% points higher than where it began, closing at 17.05, while the NDX volatility index, QQV, nearly 3 points higher at 23.14.

Weekly COMPX candles

As noted above, the selling this week did little damage on the longer timeframes, and while this week brought the Nasdaq it's longest red candle in months, the weekly cycle oscillators barely twitched. Trendline support in the 2040 area held, and until that level falls, there's no indication of any damage to the solid uptrend off the March '03 lows. If you squint, you can even see a small doji shadow at the bottom of this week's candle, indicating the disappearance of sellers at the lower rising trendline. The setup is nevertheless bearish, displaying downside acceleration below the mid-January high, but until the trendline cracks, it's just a correction in the rally uptrend.

Weekly INDU candles

We see a similar picture on the Dow, with the decline respecting the lower rising trendline but in this case with a bearish engulfing candle. There were new rally highs printed prior to the FOMC announcement, setting this up as a key reversal week. The last few "key reversal" signals on the daily charts have failed, though as Linda points out, Professor Pring prizes these among the strongest of technical indicators. A break of the lower rising trendline at 10400 will be the first indication of trouble in this extended paradise. The weekly cycle oscillators continue to trend up.

Daily OEX candles

The OEX gave and confirmed sell signals this week on the daily candle chart, with the daily cycle oscillators rolling over and following through as the week progressed. Channel support is 11 points south at 549, with primary channel support next at 535. The daily cycle downphase has yet to do any significant technical damage, and until the weekly cycle turns down, downside support levels should be good for a strong battle from bulls. If 535 fails, I expect that to affect the weekly cycle upphase and possibly introduce the first hint of longer term bearishness into an otherwise bullish-corrective picture.

20 day 30 minute chart of the OEX

Zooming in further to the 30 minute chart, we see the daily cycle downphase producing a trend of lower highs since Tuesday. Support is next at 558, followed by 556 and 553. The end of day upward drift produced the first suggestion of a whipsaw in the 300 minute stochastic, while the Macd remains in a hesitant oversold bounce. The descending trendline at 563 should cap the current bounce under the steep daily cycle downphase, above which 566 is the next resistance level.

Daily QQQ candles

QQQ rolled over as well and saw intense selling this week, resulting in a more advanced daily cycle downphase than we see on the OEX. By the same token, the uptrend is far from being threatened so far, and secondary support projects to just south of 36, with price confluence beginning at 36. Given the positioning of the Nasdaq at its rising weekly trendline, a washout below 36 could be the start of a more significant correction, but given the progress of the daily cycle downphase, it's not unreasonable to expect that level to hold. If Friday's waffling was any indication of things to come, we can expect the current daily cycle downphase to begin hesitating. Bulls can look to buy dips around 36, but should be attentive to the risk of holding through a failure of that level given the weekly support lines in play.

20 day 30 minute chart of the QQQ

The 30 minute cycle downphase did not whipsaw for the Qubes as it did on the OEX. The sideways drift violated the steep downtrend line from Tuesday's high, but the Qubes closed lower by .70% and were less than inspiring in either direction on Friday. Support is at 36.65, followed by 36.20 and 36. Currently, the 30 minute and daily cycle oscillators remain in synchronous downphases, favoring a test of lower support.

Traders are fortunate to have the indices closed on key weekly support, as it sets the stage for some clarity on Monday morning. Any upside implies a bounce, and downside risks failure. Traders remain in a state of high anxiety, as we saw with the massive QQQ volume on Thursday. Better to show some patience and wait for the direction to assert itself. Let the market decide which way it wants to go. See you on Monday.

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