Farewell My Trusted Friend!
My tested and trusted road map (presented here every day for many weeks) broke on Friday.
The channel served me well and proved to be a better navigator of the day-to-day craziness of the market than many pundits and gurus and opinion masters.
It does not mean that index cannot crawl back inside the channel and move up. It just means that I may not be able to trust it as much as before. Also, I think the break marks the end of a short term uptrend, and even if index rallies from here, that move may have to be evaluated independently.
Index stopped right at support and kept the bullish counts that I discussed in prior posts alive.
Index started the OpEx day in a volatile fashion
It then rose with a series of tall candles but fell short of Thursday’s high. There was only weakness after that. That weakness, however, could not break the index below the 875-880 area.
For the day, volume contracted lower.
This contracting volume of the recent decline is something that bears should not take lightly. Stochastics is around the midpoint and we should be watching to see if it turns around from these levels or not.
Net new highs have turned sligghtly negative. In fact, that measure never took off in a meaningful way, and that’s understandable given the magnitude of the collapse of 2008. Net new highs of a healing market should stabilize around zero, and not dip below it significantly. If you remember, during the rally of November 08 - January 09, I almost constantly pointed to the number of new lows and regarded that as an overhang of suspicion over the health of that rally.
For now, it’s just a warning – something to keep an eye on.
Breadth was negative. Advance decline line is flirting with its uptrend line.
This is a picture of weakness but not yet of death – remember that next week!
This OpEx week turned out to be a non-event. Bulls seemed satiated, and bears seemed decimated and without rigour, they did not have it in them to take the selloff lead and charge lower in a meaningful way.
If bears cannot take S&P below 875-880 and keep it there, they may give bulls enough time to consolidate here and launch another assault upward.
There are positive divergences appearing on shorter time frames
I have decided to bring my stop lower, and divide my shorts around two stop points:one somewhere above 900, the other somewhere above 915.
That ensures decent profit for me, and if index can make it above 915, then I should seriously re-evaluate a bearish stance.
For now, we seem to have a nice downward channel in the works, and we’ll see how it behaves next week
Nas100 bounced early on but could not keep the gains
Here again we see a declining volume pattern for the drop. Nas100 looks wounded, and weak, if bears cannot move in for the kill when the animal is wounded and weak, then they’d better start planning their summer vacation, if they still have money for a vacation, that is.
To remind the bears of how vulnerable they may be, let’s look at this super bullish count one more time
I can play with the degrees, and re-arrange the labels and get other counts out of the above, and that is not point. The point is that the danger of the melt up that I have been mentioning for days is still very much alive, especially now that some of the overbought readings have cooled off.
As I have mentioned before, I think a study of corporate debt market is important for a better understanding of risk appetite
First the junk
Well, I believe all corporate debt is junk, especially at a time when I cannot comfortably accept any number that comes out of any corporate head, but market has its own perception of value. The perceived high quality corporate debt ETF is still hanging on
This is quite in line with what we see in Nas100 or other high beta instruments versus the supposedly safer components of S&P
In short, I think market is sitting on a fine balancing line, and has not quite made up its mind yet
To wrap up:
Market is at a juncture. The bull is wounded, and if the bears cannot move in for the kill, they run the chance of being obliterated in a melt up.
Bears have the short term trend on their side albeit on pathetic volume. They need a solid break below high of April 17 (875-880) to solidify their case and lessen the likelihood of possible bullish wave counts
Watch the Stochastics to gauge the strength of any short term bounce
Short term trend is down. Mid-term trend is up. Long term trend is down
A sustained price movement above 912-915 will scare me enough to go to the sidelines. Depending on how it unfolds, it may even lure me into trading the long side. And I mean trading - absolutely no new long positions for me at this point.
Resistance is 900, 912 (pivot), 920, and 935 (Jan 2009 top). Support is 880-885 neckline, and the frequently contested 850
I leave you with this chart
This is not a broken index – Not Yet!
Price is sitting on 21 EMA. Referring to the NDX chart above, I wonder if it will follow Nas 100 and break below or not. So, let's keep an eye on it!
Have a nice Weekend!
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