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Friday, July 9, 2010

Friday Weekly Charts

Lately I have been using the exponential moving averages on th daily charts, because it seems like that, especially on the SPX and Nasdaq, are what the traders (read that 'computers") are keying off, but since they strive to be unpredictable, they periodically key off the simple averages. Here we have the SPX daily with all simple averages, and today we hit the 20dma and stopped. We can't tell yet if this will be a sell signal for them (no doubt they bought at the low and are ready to scalp their positions), but if not we have a descending 50dma which probably will be. Here the 50 and 200 crossed early, a sell signal for long term traders (note: dhort term traders using this as a sell would have sold at the bottom), and MACD is in an area where it can, and probably will, whipsaw.  We are on a follow through day, but i will bet that O'Neil isn't buying in yet, as this market still has a lot to prove. Getting back above the moving averages will go a long way toward that.

On the weekly chart you can see that, despite the gain this week, we just about got back what we lost last week. Volume, considering that this was a 4 day week, was about average. I used last week's low as the bottom of the current trading range, which puts the top a little higher than April's high. We are in a pretty well defined short term down channel, and until we break out of it, I won't be convinced we've changed trend here.

The Nasdaq fell short of getting back it's losses, is still short of the 40 week average, and is now going through the cross of the 10 and 40. Despite the up week, stochastics are still heading down, MACD has tightened a bit bit is also still heading down, and volume on the bounce was at best average.

The Dow industrials got stopped dead by the descending 10 week average, which crossed under a couple of weeks ago, but it did get back all of what ot lost last week and the momentum indicators are slightly better here. Despite a nice bounce this week, i would still say the market is in defensive mode.

On the plus side, the Dow transports still have a 10 week above the 40 week, gained almost 6% this week,  and never broke the February low. On the negative side, the 40 week average stopped it cold, and stochastics and MACD are both quite weak.

Much the same can be said about the Russell 2000, except that it is even weaker. This should be leading usn out of the wilderness, not lagging behind. We might just have some more work to do here.

We are in a period of seasonal weakness and low volume. The follow through day we had was not terribly convincing. I don't know what the odds are on having 3 consecutive failed follow through days are, but they are probably pretty low. So a pretty decent bounce, going right into the teeth of some pretty fierce resistance, is what i see as most likely here. But by no means do I think this correction is over. We might not go any lower (but there is no way I will bet on that), but it will probably be at least a couple of months of whipsaws before we get a lear picture of what this market wants to do.

I will have the new highs update shortly.

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