S&P 500 - October 15, 2010

All about TECH!

The tech index had a really good day yesterday.

Typically, it is good for a high beta like NDX to be a leader of a rally, but let’s take a look at the rally

NDX rose 2.10% for the day. Looking at the constituents of NDX, I see this


13 issues matched or bettered the index for the day. 87 issues lagged. So we have 13% of the index doing the heavy lifting. NDX, as you know, is weighted index, so, you get a big guy like GOOG doing 11% and that makes a difference.

The equal-weighted tech index $NDXE did +1.04% for the day. So, by being weighted, the index did twice as much as it might have done had it not been weighted.

Looking at McClellan group of oscillators


We see that price oscillator is lagging the volume oscillator. This I think can be seen as a few rising on big volume while the rest are neutral at best. If I am correct, then we, at this moment, have a somewhat narrow index. That is not a healthy situation.

I am not predicting a top or collapse or anything (since I am not in prediction business and know nothing about the future).

Index has just made a new high for the year. It enjoys nice support from the breakout point and nice support from 2007-2010 downtrend line. Furthermore, the Summation Index is positive, negatively diverging, but positive, and that is good. I just would have liked broader participation from the whole index.

The rest of the market did not have a good day. S&P was flat. It has been underperforming the techies in a serious way lately and that also helps me argue that we have a narrow market at this moment.

Can a handful of techies hold the fort till the rest of the techies and the rest of the market catch up? Who knows? We are not dealing with money created from economic output and saved and invested after expenses and taxes. We are dealing with a few billions here a few billions there created out of wherever it is money is created these days. Take a few billion, lever it up 30 times, 50 times, or more, and that can buy a good chunk of NQ futures or GOOG shares or whatever the recipient of that money decides to buy.

Again, I am not trying to predict anything or even downplay the tech rally. It is what it is. Maybe it was due to OpEx activity that S&P stagnated for the day. And maybe it can shake off the selling of bank stocks and join the techies. Maybe the recipients of Fed billions go buy the S&P futures next time they get some money – we’ll see.

Anyhow, S&P had a decent week


Index is close to a band of resistance that starts around 1175. On the other hand, it has support from the 2007-2010 downtrend line. For now, as long as it stays above that downtrend line, it’s either advancing or consolidating.

This is a daily


We have some negative divergence building on RSI. We have had an increase in volume while price has gone nowhere – a lot of churning. Churning after a rally may be distribution or a change of hands. I have not seen massive distribution. Let’s say that we have a pause and leave it at that. There is support from 13 EMA that has held the rally since September. There is support from the 2007-2010 downtrend line, and there is support from 1150 area.

As long as index stays above support, it’s either advancing or consolidating.

Daily volume expanded. Daily breadth was negative


McClellan group of oscillators are lagging the rally


Notice that volume oscillator dipped below zero. This is not what I would like to see looking under the hood.

If index can hold this area and gather some might to rally, the next resistance comes around 1200, which is around the target of the Inv H&S we identified many posts ago.

We have an index that can easily correct to 1120-1140 and still be technically sound as far price is concerned. We have lagging McClellans. We have S&P lagging the techies. We have a crowd that has abandoned all talks of economy and is instead cheering Fed the savior for more money to play with. And we have a market that is short term overbought. I would be hesitant to chase, and very careful with I might already have.

One more breadth chart


Mid to long term, there is nothing wrong with the breadth picture above. Everything seems to have room to go still. It’s the shorter term picture that concerns me as I discussed with McClellans. We know that change happens at the margin. First the short term picture deteriorates and then the longer frames. I just am concerned and careful and would like the short term picture to stay healthy and correct the nagging diverging issues before damaging the longer frames.

This is a 60-min chart


If the count is correct, index can drop to the 1150 area and still be in a minor wave 4. The recent price activity does not look overly impulsive. This is a 5-min chart



It’s really tough for me to say if the correction from Oct 13 is done or not. If it’s done, then we should not see SPY below 116.80 or so, or the index below 1166. A move below 1166 implies the correction may not be over and exposes the index to 1150 area (top of minor wave 1). A move below 1150 area shall, in all likelihood, nullify my count.
So, I will stay with my 1165 as a top level of concern. After that, I have

1150

1134

1120

A lot depends on the dollar. Everybody just hates it so. Everybody’s talking how Fed will print till we run out of trees. I wonder how much is priced already



So far not even a dead cat bounce. There have been two interesting candles these past two days. Keep an eye on the dollar!

There have been some talks of foreclosure problems. It’s hard to envision a healthy stock market when banks are under pressure if not outright distribution

This is the US banking index


And This is a McClellan chart of the Banking ETF (ETF based on BKX index)


There are pretty pictures. Trader beware!


OEW pivot support at 1176 and 1168. Pivot resistance at 1187 and 1219.


Long term trend is up. Mid-term trend is up. Short term trend is up.


Have a Nice Weekend!