Here’s the Deal:
The Dow is in the process of saying good bye
to the near-term uptrend line. Hey, it is a really steep
uptrend and the steeper the trend the harder it is to maintain.
At this point, it is just a minor corrective pullback with the
Dow effectively holding at or above the support line at the old
high of 14,021.
From a wave pattern stand point we have
several alternatives. The most obvious, since the 25th,
is an extended first wave rally followed by an extended third
wave rally leaving us in a wave 4 pullback. This alternative
allows for one more healthy push higher with the upside
Fibonacci extension zone of about 14,180 to 14,260 possible by
Friday. The Fibonacci extensions have been remarkably helpful
of late. Notice the near perfect relationship of Monday’s high
to the second Fibonacci upside extension, based on Monday’s
opening thrust high.
For now 14,000 remains the key support the
bulls need to hold. Until that gives way, the bulls are in
control. Sliding below there targets the previous base of
support at 13,900 with increased downside potential from there
depending on the character of the move.
Wednesday we get the ISM Services index along
with Crude inventories. Thursday we get claims and Factory
Orders and Friday is the biggie, the employment report for
September.
Jim Patterson
Here’re the Details:
The Dow was up 20 (not a new high) and then
fell 95 points to the low of 14,012 when it was down 75. It
closed down 40 at 14,047 on a slow trading day.
XOM, UTX and HON together took 34 points out of the Dow while
GM added 8.
The top of the Dow’s 21-day 3.5%
exponential trading band moved another 37 points higher to
14,164. The Theoretical high for the Dow was 14,166. The
Dow continues to track along the top of the rising band of
resistance keeping a lid on the very short-term upside
potential.
The top of the band continues to rise 33+ points per day so it
should be close to 14,200 on Wednesday. The Dow’s Theoretical
high is typically 30 to 50 points higher than the actual print
high which suggests upside potential of about 125 points or so
for the Dow on Wednesday. If the Dow is going to reach the
14,200 – 14,250 upside Fibonacci extension zone, it is more
likely to happen towards the end of the week.
The HUI wasted little time testing its
recent low: The Dollar ticked higher on Tuesday, a rare
event these days, and with that Gold was hit with heavy
selling. There are two lines of thinking on Gold Prices. First
is that gold is going up because the dollar is going down, and
there is likely some truth to this one. The second is the big
picture supply / demand environment, which remains strong.
We are maintaining our expectation that the HUI is in a
consolidation after its recent run up. Support of 380 was
tested Tuesday and the bulls can still allow for a test of 360
– 365 support, which would be considered a normal retracement
of the August – September advance.
See chart from yesterday.
The S&P 500 is dancing with its uptrend
line, but the bulls got the healthy consolidation they needed:
After Monday’s powerful first day of the quarter buying
spree there wasn’t much left for the second day of the quarter.
However, it wasn’t much of a correction either. The overall
tone of the SPX was firm on Tuesday. With that the SPX is
crawling over a very sharp uptrend line.
The absence of a sharp break of the uptrend line suggests we
will see another push to the upside.
The SPX remains at the lower edge of the first Fibonacci range
of 1548 to 1553.
Pushing above 1555 will target the next higher zone at about
1570 to 1575.
Focus on 1538 as a minor warning flag while a breach of 1532
will signal a larger pullback is under way. Really it is the
character of any more lower that carries the SPX away from the
rising trend line that will prove most telling.
The Russell 2000 closed above 830, a major
development: Even though the Dow was down, the Russell 2000
gained almost 1% and it closed above the 76% retracement line
at 829. This is a major development because if the Russell
doesn’t quickly move back below 829 the 76% rule comes into
play. Once a stock or index retraces more than 76% of a
directional move it is much more likely to achieve a full
retracement.
Taking out allows us to set our sights on the July high,
856.48. However, considering the market’s near-term condition,
we don’t expect a straight shot up to 856.
The NASD tacked on a few
more points Tuesday along with the Russell. It is interesting
that the Dow and S&P did not share in their glory. At the end
of the day the NASD is looking great, but it also looks
extended so a near-term pullback starting in the next one to
three days won’t be a surprise. Focus on 2700 support. That is
almost 50 points away, but technically the bulls have no reason
to be concerned unless or until 2700 is broken.
There were no changes in the trend table on
Tuesday. The NASD Composite is the only index that can turn its
3-day trend up on Wednesday. The rest will have to wait until
at least Friday for their next chance to turn.
The Detailed Trend report, CLX Charts, Weekly Trend Signal
Count Charts, have been moved to a new location at this link.
This link now has a Chart of NYSE 8-day Buying and Selling
pressure, plus a few others.
Total breadth was +1031 and trading volume
contracted substantially. And this is where things get a little
sticky. With healthy breadth, directional volume was to the
plus side and we saw reasonable buying pressure, considering
the low volume.
It is the breadth reading that is remarkable. Monday it was
very strong as prices surged across the board. Tuesday the Dow
and S&P stall out but breadth is strong in the secondary issues
as the Russell continued its strong advance.
Last week my mantra was all about a broadening
rally effort, but due to the end of the quarter, it never
really broadened out. Now here we are two days into the new
quarter and we have two days of strong breadth. This might be a
case of too little too late, but it is constructive seeing
breadth of +1000 while the Dow is down a few points.
We now have a low quality overbought
condition. The AD Line metrics have reached overbought levels
while nearly all volume metrics are showing some sort of
non-confirmation type condition. In short, we don’t have very
much buying, but we have even less selling and the lack of
selling allows prices to advance.
The NDX, which has been leading the charge
higher, is showing a notable negative CLX divergence. The NDX
has powered higher, but the CLX has reached a series of lower
highs. Recent History suggests one solid negative day will
likely mark a near-term high of some importance.
Also note that despite healthy breadth
numbers, the CLX count contracted.
The 5-day RSI metrics remain relatively high
and with the Dow’s minor drop, we now have a potential setup
for a 5-day RSI divergence if the Dow closes at a new high.
From a pattern stand point, we should maintain
our “one more high” line of thinking. However, by the end of
the week the market comes under a lot of negative seasonal
pressure. Whether it will be “different this time” is yet to be
seen. We can say that on a near-term basis the rally effort is
showing plenty of signs of age. A hard break down now is likely
to be difficult to recover from, but there is reason to expect
the rally to hold up through Friday’s NFP Report.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow
13,490, 13,580, 13,630, 13700, 13,875,
13,932, 14,021 , 14,180,
14,265
SPX
1467, 1478, 1489, 1496, 1504, 1517, 1525, 1532, 1537,
1548, 1554, 1570
NASD
2558, 2575, 2595, 2600, 2622, 2649,
2664, 2685, 2700, 2742,
2772, 2810
NDX
1945,
1954, 1969, 1991, 2000, 2018, 2030, 2061,
2100, 2117, 2132, 2187
NYSE
9470, 9550, 9646, 9730, 9860, 9970, 10,000, 10,080,
10,237, 10,272, 10,750
RUT-2K
765, 778, 787, 794, 800, 812, 824,
830, 835, 842, 848, 854-856, 861, 876
Most obvious Chart Support levels:
Dow
14,021, 13,820, 13,750, 13,620,
13500, 13,356, 13,225, 13,050, 12,985
SPX
1547, 1541, 1532,
1522, 1518, 1507, 1489, 1451, 1428,
1400, 1363
NASD 2730,
2692, 2655, 2621, 2600, 2592, 2577, 2558,
2531, 2516, 2491, 2450, 2400
NDX 2102,
2080, 2050, 2025, 2000, 1989, 1976, 1954,
1923, 1896, 1860, 1838, 1810
NYSE 10,000,
9920, 9865, 9720, 9600, 9525, 9456,
9385, 9220, 9186, 9025, 8925, 8800
RUT-2K
834, 828, 816, 805, 800,
795, 787-8, 782, 777, 775, 765, 760, 746, 736
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
If the NDX pushes above 2130 and later falls
back below 2110 then look to go short, QID, expecting a more
protracted correction to unfold over the next few weeks of
October. Again, for the trade to work, it is going to take more
than “just a pullback.” We need a catalyst to motivate a change
in the near-term character of the price action.
S&P 500 (SPX) Trading
We are looking for a chance to go short above
1556 provided the internal are weak. A pullback to 1540,
provided the internals are firm, could be bought on Wednesday
still looking for the final wave 5 push higher.
Tactical Stock Trading Powered by the PRS Stock report
WFR rec Long 8/22 @ 58.95, stop 56
closing, closed at 63.02
HURN rec Long 9/24 @ 71.08, stop 71.50, closed at 73.83
Long-term Buy and Hold:
AMD rec @ 12.94 closed at 13.20
SMSI rec @ 16.10, closed at 16.34
Stocks to watch:
Best of the Best: The table below shows all
stocks with 3, 6, and 12-month PRS Ranking of 96 or higher.
There are 22 of them. Bold Blue indicates an IBD 100 stock.
Jim Patterson
Editor
Tactical Trading Outlook
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