I wrote my last Trader's Corner (6/24/14) on what constitutes a so-called 'key' downside reversal
. Skip if read before and go to the charts updated to this week. My end of month review is after this first section, which updates 'key downside reversals' I wrote about 6/24/14. It's now 4 trading days on with a mixed outcome versus the expectation in such a pattern:
"What I call a 'KEY' downside reversal typically happens when an uptrend has been underway for a lengthily period. There's then a move to a new daily (or weekly) high for the move, often a decisive new high, followed by a collapse in prices and a CLOSE below the prior 1-2 days (or weeks) LOWS.
We see the above conditions met in my first chart, a close up view of daily price action in the S&P 500 (SPX). How much further downside we'll see after this dip is still unknown, but corrective pullbacks are often substantial after a key downside reversal pattern occurs."
S&P DAILY CHART AS OF 6/24/14 CLOSE:
The downside reversal occurring with a decisive new high (after a prolonged move), followed by a Close below the prior 1-2 or 3 days' Low, is seen again next in the S&P 500 (SPX), only reflecting the end-of-month June Close and 4 more trading days past the reversal I wrote about last week.
So far, the apparent key downside reversal in the S&P 500 (SPX) is not proving to forecast a pullback/trend reversal but more of a minor price stumble and a sideways trend; and not seen in Nasdaq price action.
As the S&P and Dow trend sideways, Nasdaq continued higher after its downside key reversal I pointed to on a daily chart basis. Special bullish import to the move above 4400 in the Composite (COMP). COMP is not however having such a strong move that it has soared above resistance implied by its previously broken up trendline, but just following or 'hugging' this trendline higher makes for continued and steady gains.
To date, the key downside reversal pattern seen on the daily COMP chart looks like it was nothing that forecast a pullback or holding down further rises. The same reversal pattern in the S&P looks like a 'pause' point for it and the Dow 30, but nothing holding down the steady rise in Nasdaq.
In the question between, does Nasdaq pull up the S&P(?), or does S&P act as a drag on Nasdaq(?): probably some of both in July.
MONTH END CHART REVIEWS:
A main point for my column this particular day is for a June month end chart review. I'll start with the active big cap Nasdaq 100 (NDX). I look at this chart at least monthly. Since I review weekly charts at the end of each week no big trend reversal pattern will creep up on me normally. We hope!
STRONG JUNE SHOWING FOR THE NAS 100 INDEX (NDX)
A continued strong bullish move for NDX is seen, not so much by June being the biggest gain but by the fact that the lows of the month were mostly above the prior 4-month price range; what in technical terms is a consolidation of a prior advance by a sideways trend resolving itself by piercing prior highs with little to no further dips into the prior trading range.
There's some resistance implied by upper trend channel line in the Nasdaq 100 (NDX) monthly chart. In strong bull moves like this one that don't seem to correct much, the rate of gain from here to year end could simply track this relatively steep up trendline higher.
Suppose that the current rate of advance continues in lockstep (unlikely, but we're 'supposing' here) until and through December and wound up at the upper trendline; highlighted at 4065. Such a scenario would make for a 13% gain for the year for the Nasdaq 100 Index, a respectable and close to a long-term average increase. The hyper bull years, are another story and actually we're in a very steep Market advance dating from early-2009.
DOW THEORY AND MINOR GAINS IN THE MONTHLY DOW:
The monthly chart scale below is one that Charles Dow's Theory operated in when he determined bull or bear market trends. The Dow 30 Industrials (INDU) eked out just a very minor monthly 109 point gain. Looking at INDU overlaid with the Dow Transportation Average (TRAN), to judge the long-term investment horizon according to Dow Theory, the two Averages show a strong long-term trend higher.
The small June gain eked out by INDU and TRAN, almost can't be seen on the Close-only Monthly line chart below. This chart goes back the many years that count as an investment horizon in the current bull market. In Dow Theory the monthly Closing price is the key price benchmark.
In terms of Dow Theory, the important bullish criteria is that all new monthly highs in each Average have been matched or exceeded by the other Average, 'confirming' from month to month, year to year, that yes Virginia we are in a bull market and stocks are a place to be.
Interesting when you switch to a monthly chart to see how strong June was in terms of an accelerating advance in the S&P long-term bull market. Average durations of primary bull and bear markets is about what's seen here on the SPX monthly chart; e.g., last bear market at 1.5 years (fairly average at 18 months), with the current bull market 5 years on versus an average of 3.5 - 7 years.
June was a stronger move for SPX then you might otherwise think as the month ended today marked an accelerating trend for SPX toward 2000 and minor resistance implied by the upper end of SPX's broad uptrend channel.
GOOD TRADING SUCCESS!