THE BOTTOM LINE -
The tech heavy Nasdaq (COMP) - hey, fund managers got to find something to buy and Nas stocks have been lagging - rallied to finally achieve an upside penetration of its bearish down trendline. So, tech may get a further bounce, as led by the smaller stocks and seen in the Russell 2000 (RUT)upside progress this past week.
However, the related bellwether index for tech, the Semiconductor SOX) Index, has not also achieved a bullish breakout, which it would do if it gets, and stays, above 480 (Fri. close: 478.9), so I'm watching this level as key to whether there is going to be much sustained upside follow through in tech.
The market is hanging in, but further upside progress seems stymied - not a good situation for index option traders - unless you are selling premium or shorting calls and puts I suppose.
FRIDAY'S TRADING ACTIVITY -
The NUMBERS -
The Nasdaq Composite Index (COMP) rose 9.9 points on the day (+ 0.5%), closing at 2,025.47. The Nasdaq was up nearly 2% on the week and so bucked the trend of the S&P market group. There is now a clear cut break out of the COMP (and in the Nas 100 - NDX) above its January - April - early June down trendline.
By the way, Nasdaq bellwether Microsoft (MSFT) has failed to achieve upside follow through after its prior week's gains, pointing up its possible vulnerability to starting to fall again - a possible bearish wedge pattern was noted in my Trader's Corner article of a couple days back. There is more on wedge patterns and a link to this article further on - scroll on.
The Dow Transportation Average (TRAN) ran up to 3164, +37 points, which exceeds its high made early this year. The fundamental influence was a decline in oil prices, as August Crude Oil futures fell under $38. I would also say that technically, it might have a lot to do with short-covering buying as well. The Transportation stocks have been favored shorts.
In terms of Dow theory, this is an "unconfirmed" new high in TRAN without a similar new high in the Dow 30 or the Dow "Industrials" (Is it time to change the name? - "Manufacturing" even doesn't quite capture the flavor anymore!)
Having just written recently, in the past week, about rising "Wedge" type patterns that often signal a reversal ahead, I wonder what is to come - if prices stall from Friday's high point and then fall back under the up trendline or that prior high, look out below -
Along with the delusions of crowds, tulip manias, south sea bubbles, there is a tendency (among technical analyst types) to see the things that they have recently been thinking about everywhere. There is a cure for that called reality! The market will soon tell us about whether the outlined "wedge" pattern on the Transports chart above, marks a possible high and even a substantial downside reversal after that. Stay tuned!
Anyway, here are my musings on the subject of Wedges, along with the On Balance Volume Indicator or OBV.
THE REPORTS -
An inflation measure - the personal consumption expenditure price index, rose 3.2%, and this was a bit higher than expectations, which averaged around 3%.
The University of Michigan came out with a revision on its June Consumer Sentiment Index, to a slightly higher number - to 95.6 from 95.2, and above the forecasted number of 95.0. Now, the idea that you can forecast anything as wily as a number that surveys the feelings of consumers, seems a bit crazy to me. Hey, people will bet on anything.
THE TALK -
Some amount of bad news is already priced into stock prices and the mood with investors is mostly confident about corporate earnings and the health of the economy.
OTHER MARKETS -
The dollar was also up (+0.5%) against the yen, closing at 107.70.
Treasury bonds closed the week in plus territory, with prices slightly up and yields down after the week's economic data - which did not influence the prevailing view of a Fed rate hike next week of a quarter of 1 percent.
Crude oil futures were down, with the most actively traded nearby August contract off 38 cents to $37.55, which is off nearly 4% on the week. Crude prices were under pressure by news that the Norwegian government will use compulsory arbitration to end a management-labor dispute. Not settling this eventually threatens oil output from Norway, the world's 3rd-largest exporter.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
As I noted already: the move to a new relative high in the 1147 area, an area of some prior peaks, followed by a close well under the most recent top, is bearish. This plus the rising Call-Put indicator of last week that almost got to a 1-day extreme.
It seems that there is a bit of a complacent attitude and consensus confidence that stock prices will stay steady and not retreat much. I don't know if that's warranted - the technical action of this past week suggests that buying support may not be strong enough to churn through stock available for sale. It takes strong buying to put em up into new high ground but a lack of buying interest (mostly) will bring em back down.
Technically, the S&P 500 (SPX) appears vulnerable to a fall back to at least the 1120 support area. Major support is 1100. Major resistance is around 1160.
S&P 100 Index (OEX) - Daily chart:
OEX is stalling out just under 560. As with the broader 500 (SPX), I think it'll take more bullish optimism than we see at present to take the S&P 100 up through resistance and a prior series of highs at 560-564.
I took the close under 550, after making a new high as a possible bull trap reversal. Stay tuned. The technical outlook turns more bullish if and when OEX can get above 560. Major resistance begins in the 570 area.
Some support may be found at 545-546, but better technical support looks to be at 540-541. Momentum is down now according to the 14-day Stochastic. I suggested last week that the overbought/high Stochastic reading at least suggested that the trend at best would be more sideways. All in all, not an exciting market - summer doldrums!
Dow Industrials (INDU) Hourly:
As anticipated, resistance and selling interest picked up once the Dow got into the 10,500 area.
Key technical support continues to look like 10,300. Prices have broken down below the hourly uptrend channel I was working with, and I think prices head lower still.
I would say again, unchanged from last week, that an ability for INDU to now hold at or above 10,400 is a tip off as to whether the Dow average can continue higher or has to fall back to 10,300 or bit above to consolidate for another possible rally attempt.
Nasdaq 100 (NDX) Index - Daily:
Resistance was figured for the 1500 area and that's the key test in the coming week - the ability to stay above 1500 - there are a series of highs there as you can see on the chart below. Based on the lack of a confirming new high in the stochastic model, plus the minor overbought condition and the inability of the semiconductors to rally much, my best guess is that this rally runs out of steam shortly.
However, if more buying does come in this week, a first key test ought to be at the prior peak at 1524. 1550 is major resistance. If we get there, buying puts is a "lay up" - pardon my sports metaphor but it would to me look like a high potential trade. Too easy and won't happen I'm thinking - the market is too perverse to hand us these neat (trade) setups - well, sometimes it does. Like, you can most often believe in double tops for example!
Nasdaq 100 tracking Stock (QQQ) Daily:
The pattern is bullish with the upside penetration of the down trendline with the possibility QQQ could get to 38.25 or higher. First, the stock has to get through the prior highs in the 37.4- 37.5 area, then 37.70-37.9.
There was a good move up from the last dip to the 36 area. Those who bought the stock may get a couple of bucks out of the trade. I would protect something and set an exiting (sell) stop at 36.75.
The Q's have an advantage of giving a volume trend we can also analyze like any other stock. Notice the declining daily volume trend since the sideways trend since from when the Q's started going more or less sideways. With Wednesday's breakout move, volume has continued to be low - not the best confirming indicator for rally strength. But, at least the On Balance Volume (OBV) turned up since the point of the recent low, which is mildly bullish as to the volume trend - best would have been to have seen a surge in volume along with the rally.
Information on the OBV indicator is in the same recent Trader's Corner article that I cited above.
Good Trading Success!