Here is the Deal:
Tuesday was in short, another corrective day.
The catch is the NDX and Dow both popped up to new highs for
the move while the S&P and NYSE Composite remain within the
confines of a tight consolidation. So, are you bullish or
bearish? One can make a convincing argument for either outcome,
especially with Bernanke set to speak over the next two days.
The Dow was drawn up to 14,000 like a magnet.
Technically 14,000 is in the middle of a couple of Fibonacci
zones, the higher of which is about 14,050. With an otherwise
constructive pattern the higher Fib targets remain very much in
play.
The support areas are pretty obvious for now
and unless or until one of them is broken, the existing trend
remains firmly entrenched.
INTC reacted poorly to earnings and if the
post report action holds over night, Intel is likely to chomp
about eight to twelve points out of the Dow on Wednesday.
With the CPI report and earnings from Dow components JPM, UTX,
PFE, and MO, the disappointment in INTC can easily be overcome.
Note: INTC had run up almost 10% in the past few days going
into their earnings report. UTX has also run up about 6% going
into its earnings report. The reaction there will be
interesting to say the least.
Here’s why:
The Dow was down 8 before rallying 79 to its
high of 14,021 when it was up 71. It closed at 13,971.55 up
20.57 on the day, 29 points off the days high. IBM, AXP, and DD
added about 40 points while JNJ (reported earnings) and took
away 8.
Interest rates are stabilizing to a
degree. Seems the bond traders took their bi-polar medication
this week. Let’s see how long it lasts. We are sticking with
our expectations for continued choppy back and forth motion
within the confines of the now well established range. However,
seeing the TYX dip below the current defining trend line will
signal a likely move down to lower support, just below 50.00.
S&P 500 is consolidating in a high tight
pattern after a strong move higher: As much as folks want
to proclaim something is wrong, that is the most accurate
assessment of the week’s action so far. This is not a case of
“no upside follow through.” This is not a triple top. (note: I
don’t believe in the mythical triple top anyway.)
The SPX rallied up to 1555, just above its all time high, and
it is now building a consolidation base formation between 1547
and 1555.
The corrective pattern should be nearing its end, which is
congruent with the very short-term cycles. Unfortunately, until
it snaps higher, it reserves the right to re-test 1547 support.
If it does, just to frustrate everyone as much as possible, it
may briefly dip below 1547 to freak out the bulls before
turning higher. On a weak open, watch the 1541 level I have
been talking about. Falling below 1535 is flat out bad for the
bulls.
We continue to target the higher Fibonacci range of 1560 to
1565.
The Russell 2000 is consolidating before
extending higher: The Russell is holding the key 848 price
level. We can’t rule out another brief test of 848 support, but
we still expect prices to breakout to the upside. The Russell's
action is in line with the SPX and the NYSE Composite. However,
if the Russell is unable to breakout to new highs by the end of
the week we may have to revise our expectations.
The NASD didn’t correct for very long as it
pushed out to new highs on Tuesday. Bottom line, earnings
reports are expected to drive stocks higher and the NASD is
well positioned to continue higher. It is nearing a Fibonacci
extension line at 2739. After that area comes ~2850. Bottom
line, this is looking more and more like an upside breakout.
Now if we can just get the broad market to participate the
internal condition will look much better.
Note: INTC is trading about $1 lower and will likely drag the
NASD lower unless something happens to offset the poor
reaction.
While the Dow made a new high, the NYSE
Composite failed to turn its daily trend back up. And, the NYSE
could turn its 3-day trend down on Wednesday. Such a
development will confirm the near-term correction. In light of
the split condition, I prefer to view the current situation as
a correction with such a heavy upward bias that the Dow can’t
even go down.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was +1500 on the open, fell to
about -250 around mid-day and rebounded. Late day selling came
in and total breadth finished the day at its lowest level of
the day at -500. Interestingly, we saw strength on the NASD and
weakness on the NYSE. Internally it looked like a consolidation
type day.
Total volume picked up to a healthy pace, but probably light
for a Tuesday during options expiration week.
The fact NASD breadth was flat while NYSE
breadth was negative leaves us with a better AD ratio on the
NASD. When this happens after a noticeable decline, it usually
indicates more aggressive buying suggesting a low is likely at
hand. When it happens after a noticeable rally, where we are
now, it can indicate a high is at hand. This metric falls into
the same irritating category as the fact that cumulative NYSE
breadth remains below its most recent peak even though the
indices are making higher highs.
I am not ready to make a big deal over it just yet, but if this
kind o faction persists alarm bells will start to go off.
Based on the action of the S&P 500 and the
NYSE composite, we have seen corrective price action over the
first two days of the week, in line with the internals. If you
look at the Dow then it is clear we have seen higher prices
unconfirmed by the broader market.
The very short-term cycles call for a low in
the current time frame with strength over the balance of the
week. While earnings reports from INTC and YHOO have been met
with selling, this options expiration week has a long way to
go. At the end of Tuesday the stage is set for a weak open on
Wednesday, but that could change quickly with the next round of
reports due Wednesday before the open. If we see weakness at
Wednesday's open, then watch for a turn higher later in the day
keeping an eye on the internals for confirmation of the action.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow
13,580, 13,620, 13690, 13,775, 13,845, 13,950,
14,030, 14,160, 14,350
SPX
1526, 1535, 1542, 1546, 1555,
1562, 1593, 1613
NASD
2605, 2629, 2652, 2662, 2672, 2715, 2735, 2745
NDX
1957, 1961, 1972, 1982, 2000, 2024,
2056, 2100, 2142
NYSE
10,000, 10,020, 10,060, 10,120, 10,230, 10266,
10,363
RUT-2K
826, 832, 838, 842, 847, 854-856, 861,
876
Most obvious Chart Support levels:
Dow 13,950,
13,875 13,760, 13,660, 13,520, 13,480, 13,350, 13,280,
13,050
SPX 1546, 1541,
1535, 1526, 1518, 1504, 1496, 1487, 1483, 1475
NASD
2694, 2670, 2655, 2640, 2625, 2602, 2586, 2565,
2558, 2548, 2525, 2480, 2455
NDX 2026, 2017, 2000,
1973, 1965, 1948, 1934,
1920
NYSE
10,223, 10,145,
10,000, 9940-60, 9820, 9720, 9690, 9510, 9400, 9350, 9280
RUT-2K
848, 844-846, 838,
836-3, 828, 820, 808- 810, 803, 790, 760
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
Support was not a factor for the NDX. While
segments of the market consolidated, the NDX continued its push
higher reaching the previously mentioned 2040 line. Next stop,
2056. We can now use 2026 as a support level on a more serious
corrective pullback.
S&P 500 (SPX) Trading
We went long the SSO on Wednesday 6/13 on the
back of the Rare Buy signals with an entry price of 94.42.
Entry #2 @ 93.00
The SSO closed at 99.80
The SPX continues to consolidate which is more
or less in line with expectations. We are looking for a
negative start on Wednesday at this point but as long as 1541
holds, ideally 1546, the tight consolidate will remain in
force.
Tactical Stock Trading Powered by Patterson Relative Strength
BBD rec long 5/31 @ 25.39, stop 23, Target
29.5, closed at 27.90
CHINA rec long 6-14 @ 8.56, stop 8.01, closed at 9.52
SVVS rec long 6-28 @ 50.55, stop 47.75, target 59, closed at
48.22
**
PRS Open Actives making noise:
SRVY, the seller is done. We have been watching SRVY for
several weeks looking for an upside breakout. The stock crawled
above the $16 level in the past two weeks suggesting an upside
breakout. However, it has chronically run into a fixed price
seller, easy to spot on a 10-minuit chart.
Tuesday SRVY blasted to a new high on very strong volume
breaking out of a very solid base formation. Conclusion, the
seller is done.
Best of the Best performers table:
Stocks with 3, 6, and 12-month PRS Ranks of 97 or higher.
The longer this list gets, the more it suggests money flowing
into the “best of the best” stocks. When it becomes obvious
which stocks to own, that is often a point when caution is
warranted. I do not believe we have reached that point at this
time.
Jim Patterson
Editor
Tactical Trading Outlook
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