Here is the Deal:
Another day, another Dow Record and the broad
market is still lagging behind. With the AA deal, AA alone
added almost 32 points to the Dow, which was the bulk of the
day’s gains. For those stocks not involved in a deal, it was
flat day with a slight downward bias.
After a positive open, most indices trended
lower over the balance of the day with the exception of the
Dow, which managed to close near its highs of the day. 13,330
remains a minor Fibonacci upside target followed by 13,400, but
Tuesday should be a quiet day before the FOMC meeting on
Wednesday. Sliding below 13,280 is the first warning flag for
the bulls, which for now remain firmly in control.
The good news is there wasn’t any noticeable
late day weakness for the Dow. Then again, breadth peaked on
the open and reached its lowest level with an hour to trade.
But it did rise in the final hour showing some buying support.
Bottom line, outside the deal related moves, there wasn’t any
volume on Monday. Most investors are in hurry up and wait for
the FOMC mode.
Wholesale Inventory numbers Tuesday morning
won’t have much impact ahead of the FOMC meeting on Wednesday.
The last FOMC meeting really ignited the current rally. Should
there be a detectable shift in sentiment vs. the perceived
direction of the Fed, it is possible this meeting could end it.
Note: The May 10, 2006 high was triggered by an FOMC meeting
one year ago.
Tuesday should be a lot like Monday meaning a
flat to somewhat corrective / consolidation like day. The Dow’s
action continues to paint a better looking picture than the
broader indices indicate. For now that means the broad market
is consolidating while the Dow continues its record run. Of
the past nine FOMC meetings, six saw the Dow gain about 40
points on average the day before the announcement, while the
Dow fell about 20 points on the other three. Either way, we
shouldn’t expect much.
Here’s why:
The Dow was never really down on the day. It
was up 53.07 at its new record high of 13,317.69, and by
closing at 13,312.97 up 48.35 points it tied a record seen only
once before. The Dow has closed higher 24 of the past 27
trading days, which ties the best run ever, which ended in
August 1927.
The trading range for the past three days has
been very tight at just 50, 55, and 57, points. Over the past
15 months, very narrow 3-day trading ranges have been followed
by at least a minor correction. If it didn’t begin immediately,
it began after a very narrow four day trading range. In other
words, the narrow range argues for either one more narrow range
day with only a very minor price change, OR, prices move lower
on Tuesday expanding the currently narrow trading range.
The S&P 500 gapped higher and closed a step
closer to 1527.46, which now really is just one good up day
away. Of course, it is probably important to note that the
S&P 500 opened higher reaching its highest level for the day
within the first half hour of trading. Not that it wasn’t a
good day, but it is clear there was no aggressive buying or
demand for stocks after the opening hype subsided.
With only a token new high on the open, all support and
resistance levels remain in tact for the most part. Sliding
below 1503 for more than a brief moment could suggest something
more sinister is at hand. Resistance remains about 1508-1510,
with the big 1527.46 waving around out there.
The Russell is wound up and ready to do
something. That something should be a thrust higher. But,
after five consecutive days of positive breadth, along with the
historical tendency to tick lower before resuming an uptrend,
odds seem to favor a noticeable down day before the RUT snaps
higher. It reached 835 Monday, in line with the April 25 and 26
peaks. Both of those were followed by noticeable selling. Just
keep your eye on that 826 level. The last time it broke the
bottom fell out for about a day.
The NASD closed lower while the Dow set a new
record high. The trend of S&P and Dow out performance
continues, which is a bit discouraging to those that favor the
OTC stocks. The negative price divergence never looks healthy
either. For now this is the trend and until it changes, the big
money remains attracted to the mega stocks.
One note on that last comment: In theory or
maybe it is just an old Wall Street saying: just prior to
economic slowing, money tends to gravitate towards the largest
stocks as they are often deemed the safest with their global
exposure. Granted, “Global Exposure” in the current context
carries greater meaning as the Dow 30 gets a lot more of their
earnings outside of the US. Perhaps that means greater
insulation on the earnings front, but should market sentiment
change drastically this kind of argument won’t hold much water
within the big picture.
Despite a healthy open,
the NDX was unable to turn its daily trend up on Monday.
The S&P 500’s last weekly high was February 22, which was 74
days ago. That is a remarkably long. In fact, it is the longest
weekly high-to-high time span since an 87 day stretch that
ended in June 1997. The S&P would have to fall below
1476 to turn its weekly trend down this week and next week it
will have to fall below at least 1505. The Dow’s weekly
high-to-high time span is currently 57 days. That isn’t a
record, but it is outside 1 standard deviation for the series.
Like everything else right now, it is due for a down
spell.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was +141 with the NYSE positive
and the OTC negative. It peaked in the first half hour and slid
lower all day long. In short, the Dow’s 48 point advance is not
representative of what happened across the broad market.
Total volume was way down at just 2.1 billion
shares, one of the slowest days in a month. While Monday’s
light volume is likely related to hesitation before the FOMC
meeting on Wednesday, it is rather interesting that after just
seeing increased volume with very little upside progress. We
are now seeing new highs on poor volume. It is subtle, and like
most subtle aspects over the past month, may not amount to
anything. However, these are characteristics we watch for to
suggest a change of trend is approaching.
With virtual new highs, 8-day Buying pressure
of 53.4% is well off the 65% level seen on the last surge
higher. This is material because the internals have been
positive for five consecutive days, with the Dow going nuts. At
the same time, there has been a noticeable fall off in the
internal health of the move.
The NYSE 10-day AD line peaked on 3/21 and has
made lower highs on 4/16, 4/25, and now 5/3. This is a
pronounced display of waning upside momentum despite the five
consecutive days of positive internals.
The Trin-5 metrics are again very low, with
the NASD below 4, which is very overbought. In addition,
despite closing higher for a fifth consecutive day and at a new
high, the Dow’s 5-day RSI still has not bettered the 90.2
reading reached before its last down day.
Friday the market floundered after News driven
positive open. Monday, the same thing happened, except the
internals were weaker.
After five consecutive up days we should be
looking for a breather on Tuesday. But the FOMC meets on
Wednesday and aside from the May 2006 high, most FOMC meetings
were followed by a mild correction or immediately higher
prices. Historically the action has been pretty tame the day
before. It is time to get into hurry up and wait mode.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow 13,310-30, 13,405
SPX 1508, 1515, 1521,
1550
NASD 2570, 2601,
2643
NDX 1900, 1907,
1918, 1936
NYSE 9850, 9930, 10,000
RUT-2K 833, 841, 847,
855
Most obvious Chart Support levels:
Dow 13,190, 13,050,
12980, 12,900, 12,825, 12,750, 12,600, 12,480, 12,350
SPX 1503, 495, 1475,
1460, 1449, 1436, 1413, 1397, 1373, 1362, 1340
NASD 2563, 2550, 2520,
2480, 2455, 2425, 2400, 2385, 2335, 2316
NDX 1888, 1868, 1855,
1840, 1822, 1808, 1795, 1775
NYSE 9760, 9700, 9620,
9510, 9400, 9350, 9280
RUT-2K 826, 816, 808,
803, 790, 760
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
On April 26, the NDX reached a high of 1896.77
and Monday, a week and a half later, it closed at 1895.96. That
isn’t exactly what I would call a rally. This reflects poorly
as the Dow has advanced considerably over the past ten days. On
the next push up through 1905 the NDX should gain some serious
upside traction, but it has to get there. 1888 remains the
breakdown level.
S&P 500 (SPX) Trading
>> 3-16-07: With strength on the open
it made sense to hold off on the SDS purchase for an hour or
so. The SDS bottomed at 60.55, well below the 60.80 I am using
as an entry price. We have a full position in the SDS with an
entry of 60.80. 3-20 we added another 50% position to the SDS
when the SPX pushed above 1407. 100% @ 60.80 + 50% @ 59.60
We moved to 200% long the SDS with the addition at 54.00. That
brings our average cost to 58.8.
The SDS closed at 52.39
No positions leading up to the FOMC meeting.
**
PRS Open Actives making noise:
No action on a relatively quiet day.
Jim Patterson
Editor
Tactical Trading Outlook
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