The week has been holding positive for the bulls but there hasn't been much excitement. Today was no different and about the only good thing to say is that the bears continue to hide from the bulls but the market needs a catalyst to get it moving.
Wednesday's Market Stats
The table above about says it all -- a mixed day that was generally positive, except for the DOW, but not real excitement. It was a typical summer day and one where the bulls are tired and the bears are hibernating (or killed off, not sure which). The day was good for the big-cap techs while not so good for the DOW's blue chips.
Trading volume has been getting lighter as the year progresses, as can be seen for SPY below, but the drastic drop in volume since the July 17th low should be very worrisome for the bulls. There's just no excitement in the new rally attempt and the drop in volume coincides with a significant bearish divergence we're seeing in the momentum indicators, all of which points to the idea that the rally in the past week could very well be the last one before we get at least a more significant pullback/consolidation. There's potential for SPY to rally up to its trend line along the highs from January-March 2014, near 200, but considering the lack of strength in the current rally that looks like a trade with a small reward:risk ratio.
S&P SPDR ETF, SPY, Daily chart
Hurting the DOW today was Big Air (BA), otherwise known as Boeing. Following its earnings last night the stock cratered this morning and then ran sideways for the rest of the day. It finished down -2.3% and a few others didn't help the DOW -- CAT -1.5%, CSCO and UTX each down -1% and the combination of these, with no strong performers to counteract them, kept the DOW in the red all day.
On the other end were big-cap tech stocks, which did well today (except CSCO). NDX was well ahead of the others and finished +0.6%. But as I'll show later, the semiconductors were not participants in today's tech rally and that's always a warning flag. I think the mixed performances by the indexes is all part of the daily rotation between sectors as fund managers attempt to stay away from what they perceive as weak sectors and it's what's part of a topping process (often defined by a messy rolling top as compared to a sharp v-bottom reversal).
Have we found the mother of all signals for a top? The chart below was shown my Art Cashin last week and it shows market highs that have coincided with Rupert Murdoch's major acquisitions. At the 2000 high he purchased Christ-Craft (recreation boats) for $5.3B and then at the 2007 high he purchased Dow-Jones for $5.6B. Now at the all-time high in 2014 he's trying to purchase Time Warner for $80B. Batten down the hatches, we're going down.
Rupert Murdoch tops, chart courtesy Financial Insyghts
Tonight I'll start with a top-down look at NDX since it has now rallied up to a target price I've been watching for. What it does from here could be important. The weekly chart below shows a price projection at 3973.24, which is where the 5th wave in the rally from November 2012 is equal to the 1st wave. That level was achieved (and exceeded) today and it has also popped above the trend line along the highs from April 2012 - March 2014, near 3960. How the NDX closes on a weekly basis will be important and if we get a little throw-over finish followed by a weekly close below 3960 it would create a sell signal.
Nasdaq-100, NDX, Weekly chart
The daily chart below is shown using the arithmetic price scale vs. the log scale used on the weekly chart above. This lowers the April 2012 - March 2014 trend line so this week's rally is more significant by this measure. But it rallied up to the top of a parallel up-channel from April, near today's high at 3991, and the bearish divergence at the highs since July 3rd, unless negated, is a strong indication that resistance is going to hold. We could see a little higher but the bulls could be asking for trouble here if they push their luck on the long side.
Nasdaq-100, NDX, Daily chart
Key Levels for NDX:
- bullish above 3960
- bearish below 3866
The leg up from July 17th has created a rising wedge up to the top of its parallel up-channel from April, as shown on the 30-min chart below. This raises the probability for an ending move here but we can't yet know whether it will end or what kind of top it would be (short term or long term) but this is the first setup since the July 15th high that has me interested in trying the short side again. The bears have a lot of work to do to convince us a top is in place but the only thing I'm currently doing is looking for setups for a possible reversal and then test it with a small short position and careful risk management. As a buyer of puts I prefer to buy on the way up near resistance instead of trying to get in on the way down (it's cheaper at the same index price on the way up).
Nasdaq-100, NDX, 30-min chart
It's worth reviewing the weekly chart of SPX as well since there's an important price projection at 1990 that has remained resistance. The July 3rd high was almost 1986 was followed by the July 16th high near 1984 and now this week's high (today's) was 1989. As noted on the chart, the 1990 projection is where the c-wave in the move up from October 2011 equals 162% of the a-wave (a common wave relationship). This is the 2nd 3-wave move in a double 3-wave move (double zigzag) up from 2009. When this leg completes it will very likely be the completion of the rally from 2009 (that's the setup anyway). While battling this 1990 projection it's also been battling with the top of the parallel up-channel from October 2011 (light green line). Weekly MACD is threatening to roll over.
S&P 500, SPX, Weekly chart
The daily chart shows a closer view of the price oscillations around the green line (top of the parallel up-channel from October 2011) and a price projection to the 2000 area to hit the trend line along the highs from May-December 2013, which is where the July 3rd rally stopped. The projection I'm showing is for a final high by early next week. That's obviously a guess and I think the risk for the bulls is that the high expectation by most for SPX to reach 2000 might in fact not happen (too many could start to take profits before that level is achieved)
S&P 500, SPX, Daily chart
Key Levels for SPX:
- bullish above 1984
- bearish below 1955
The DOW also shows a little more upside potential to reach the trend line across the highs from March-June and a shorter-term one from July 3rd, both of which cross near a price projection at 17217 next Monday (based on a wave relationship in the leg up from June 26th. Above 17220 would be bullish for a possible run up to the 17350 area but a drop below the July 17th low at 16966 would indicate the top is likely in place.
Dow Industrials, INDU, Daily chart
Key Levels for DOW:
- bullish above 17,220
- bearish below 16,966
The daily chart above shows a large rising wedge pattern for the rally from April and the 60-min chart below shows additional rising wedge patterns inside the bigger one. The top of the wedges coincide in the 17200-17217 area next Monday and it would make for a very interesting reversal setup to watch for if it plays out as depicted.
Dow Industrials, INDU, 60-min chart
The RUT has been weaker than the other indexes since its double-top high on July 1st. The bounce off its July 17th low could make it higher but so far it's only been able to retrace 38% of its decline at 1162.79 (it missed it by less than a point with today's high at 1161.99). This will continue to be our canary, which has been sucking air for a while now but hasn't fallen off its perch yet.
Russell-2000, RUT, Daily chart
Key Levels for RUT:
- bullish above 1175
- bearish below 1140
With the techs looking relatively strong today I was surprised to see the semiconductor sector weak. The SOX was down -2.3% today and the weakest sector in the list I track. The daily chart could be putting in a rolling top since peaking on July 3rd and the weekly chart below shows MACD crossing back down. Its July 22nd high at 652 was only 4 points shy of the projection to 656 where a large A-B-C bounce off its November 2008 low has two equal legs up. Not shown on the chart is the 38% retracement of the 2000-2008 decline, which is near 624. We'll only know in the future if this is the setup for THE high for the 2008-2014 rally but that's the setup here (the next move is a larger c-wave down to a low below the 2008 low at 167.55 to complete a large 3-wave pullback from 2000.
Semiconductor index, SOX, Weekly chart
The banking index, BKX, also appears as though it's putting in a rolling top, this one starting from January, which also fits as the left shoulder of a small H&S topping pattern. The March high, at 73.90, was only a small pop above the projection at 73.64 for two equal legs up from 2009 and so far the best the BKX has done since then is the July 3rd high at 72.55 and a test of that high on July 16th to 72.31. Last week's sharp selloff has been followed by a choppy sideways/up correction and looks ready to continue lower. A break of its 50-dma, near 70.25, would create a stronger sell signal (it bounced off the 50-dma last week). The bearish divergence since July 2013 shows the banks have been slowly losing momentum as it struggles to keep up with the broader indexes.
KBW Bank index, BKX, Weekly chart
The TRAN is also poking up against what could be strong resistance. A trend line along the highs from May 2010 - July 2011 has been resistance since early June, as has a shorter-term trend line along the highs from May 2013 - January 2014 (grey line on the weekly chart below). Its bounce off the 2009 low consists of two 3-wave moves and the 2nd one is the move up from October 2011. For this a-b-c move the c-wave is 162% of the a-wave at 8547. Today's high, which was quickly followed by selling (which created a bearish daily candlestick), was at 8515 so 32 points shy of its projection. That might be all we'll see but keep that projection in mind if the TRAN works its way a little higher in the next few days. Following the 5-wave move up from November 2012 (for wave-c), this is ripe for a finish.
Transportation Index, TRAN, Weekly chart
Not much to add to the commentary I've had about the U.S. dollar for the past year. It remains range bound between 79 and 81.50 since October 2013 and we're waiting for a break of it. My expectation is for a break to the north but price is king and we wait for confirmation.
U.S. Dollar contract, DX, Weekly chart
Gold got hit hard at the beginning of last week and is currently bouncing between support at its 50-dma, near 1294, and resistance at its 20-dma, near 1317. I think there's a good chance we'll see gold bounce a little higher, up to its downtrend line from August 2013 (top of sideways triangle from that high) before starting another leg down. But with it currently doing battle with the top of a parallel down-channel for its decline from 2011 there is the possibility it's going to head lower sooner rather than later. A break below its June 3rd low near 1240 would indicate the stronger decline has started. Above 1393 would negate the bearish sideways triangle and point to at least a higher bounce.
Gold continuous contract, GC, Weekly chart
Oil has been chopping its way higher since the low in January and it looks like bounce failure waiting to happen. But it also fits as the final wave in a 5-wave ending diagonal (rising wedge) for the c-wave of an A-B-C move up from January 2009. The c-wave would be 50% of the a-wave at 115.76 and that's the upside target I'm sticking with until proven otherwise. The first "otherwise" would be a drop below 95.
Oil continuous contract, CL, Weekly chart
It's a slow week for economic reports and the only one of significance tomorrow will be the New Homes Sales report, which is expected to show a continuation of the slowdown in the housing market, which wasn't supposed to happen according to the economist but it's following the longer-term pattern calling for another leg down in the big bad housing bear market (along with the stock market).
Economic reports and Summary
The bulls have been doing just enough to keep the bears away and that has kept the market bullish. Nothing has changed this week and I see the potential for the market to push at least a little higher into next Monday where some of the indexes could run into strong resistance at the same time as it will be finishing longer-term wave counts. As with so many reversal setups in the past, all I can do is show the potential for the reversal but price is king and we need to defer to it. Lines and price projections don't mean squat if price simply pushes them aside.
But the setups that I've shown on the charts are good ones for major reversals and for that reason it will be worth watching very closely to both protect long positions and play the short side. We've again reached the point where upside potential is dwarfed by downside risk. The market is vulnerable here and it won't take much of a scare to get traders to hit the sell button. Most have been conditioned to buy the dips (it works!) but when the real selloff begins, those buyers will be the panic sellers and it's one of the things that starts runaway selling (where the market goes begging for buyers). Trading should be a daily business from here -- read and react -- since overnight holds could be dangerous to your financial health.
Good luck and I'll be back with you next Wednesday.
Keene H. Little, CMT
In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying