Investors and professionals alike seem to be anticipating a market crash verbally, but in actuality their investments appear to be the opposite judging from sentiment measures. The truth is that markets never crash when that crash is anticipated. They appear suddenly and catch many by surprise. The reaction of the surprise of a crash is generally to dump everything in sight and thus the market falls more than anticipated. Bear market crashes are not one-day wonders, which is exactly what we have seen in recent weeks. Once the market falls for more than two or so days, margin calls are triggered and that presses the downside even further. When the selling abates, we generally find a lull in the down thrust and falling volume. The market then tends to go sideways probing the upper ends of a trading band and then, the volume rejoins but this time to the upside as each probe to the upside is successful. We do have event driven down thrusts in the markets as seen with the Euro, Greek and Russian events just to name a few. These events are short lived and tend to reverse. These comments beg the question: how are we to know that there are is a crash? Simply stated it is a continuing down thrust with brief and small reversals. The truth of the matter is that we don’t know it is a crash until after it has occurred. As technical analysts we do have an advantage in that we analyze the supply and demand (price action) of the market rather than the “company line.” Remember also that markets tend to go down more quickly than they go up.
The economy seems to be sprouting green shoots and feels better, but then it has been a long winter and the thaw is making us all feel better. The only big bad wolf at our doorstep seems to be the closure of brick and mortar stores such as Staples and Radio shack. Yes the internet is replacing lot of foot traffic that these stores had and unfortunately, store closures will occur more frequently than in the past. We are more inclined to go online and search out a product, compare pricing and purchase than to drive to a mall, park the car and deal with hostile sales people. Okay so they aren’t so hostile anymore but still, it is a savings of time and easier to sit in your PJ’s and shop for a dishwasher, dress or even a car.
The S&P 500 has been up for four of the past five trading days. Interestingly, three of those days, Tuesday through Friday were all very small bodied candlesticks. We do have signs of exhaustion and the market is beginning to feel heavy. The stochastic indicator and our won indicator have just issued a sell-signal. The RSI continues to point higher at overbought levels. All the indicators that we follow herein are overbought for the daily, weekly and monthly time-frames. The 5-period exponential moving average is 1870.04. The top of the Bollinger Band is 1884.83 and the lower edge is seen at 1799.36. We are above the Ichimoku Clouds for all time-frames. A cautionary note is: we can remain overbought/oversold for extended periods of time. These indicators just act as a warning for you alerting you to pay more attention to your positions or tighten your protective stops. They are not really sell-signals per say. The upward pointing channel lines are 1884.03 and 1848.84. The Bollinger Bands seems to be contracting telling us that the market is digesting its gains. The Bollinger Bands do not tell us the direction of the future move only that it will be consolidative or volatile. The daily 1% by 3-box point and figure chart continues to look very positive. The 60 minute 0.2% by 3-box chart is also positive with an upside target of 1995.01.
The NASDAQ 100 retreated in both the Thursday and Friday session. This index printed a new high for the year, in the Friday session and the reversed leaving a bearish candlestick on the chart. We are above the Ichimoku Clouds for all time-frames. All the indicators that we follow herein are pointing lower. The 5-period exponential moving average is 3708.46. The top of the Bollinger Band is 3744.85 and the lower edge is seen at 3599.76. Just to be clear, although we do have sell-signals from all the indicators that we follow, the volume has been falling and we remain above eth uptrend line, therefore, until or unless we break decisively to the downside, we have to continue positive with, very tight stops. The 60 minute 0.2% by 3-box chart does have an internal downtrend line and an upside target of 3935.23. The daily 1% by 3-box chart continues to look extremely bullish. Bottom line here is that this index is weaker than the S&P 500. That said, the tables can switch on you very quickly. If long, the NASDAQ 100 move your stops to a tighter position and use, if possible, trailing stops.
The Russell 2000 printed an all-time high in the Friday session. The 5-period exponential moving average is 1198.66. The top of the Bollinger Band is 1219.47 and the lower edge is seen at 1112.70. We are above the Ichimoku Clouds for all time-frames. We are at overbought levels as measured by the stochastic indicator and the RSI, however; we seem to be going sideways. The up thrust seen in this market since February has been too steep to continue at this pace. We believe that the market will either have to go sideways backing and filling or retreat to relive some of this overbought pressure. The very steep up trending channel lines are 1225.93 and 1190.71. Should this market break above 1212 there will be no more overhead supply on the on the other hand should we fall below 1197, we would slide a quick five points at the very minimum. We are also watching the VWAP 5-period exponential moving average which is currently positive because the VWAP is above the moving average. It seems that when these lines cross, the market changes direction.
The Crude Oil market rallied in both the Thursday and Friday sessions. The rally in the Friday session was a 1.11% gain for the day. The stochastic indicator and the RSI are again positive however; our own indicator continues to issue warning signals. The retreat in the Tuesday session broke the uptrend line and the two-day rally at the end of the week was unsuccessful in removing that negative look. Another push to the upside will cause our own indicator to turn positive. The 5-period exponential moving average is 102.45. The top of the Bollinger Band is 104.62 and the lower edge is seen at 99.43. We are above the Ichimoku Clouds for all time-frames. The 1% by 3-box point and figure chart has an aggressive upside target of 135.03. The chart’s downtrend line is about to be removed. Caution is advised so long as we are below that downtrend line.
Gold took a nasty spill in the Friday session losing 0.77% on the day. We are above the Ichimoku Clouds for the daily time-frame, below the clouds for the weekly time-frame and in the clouds for the monthly time-frame. We have a sell-signal issued by all the indicators that we follow. The 5-period exponential moving average is 1340.41. The top of the Bollinger Band is at 1362.61 and the lower edge is seen at 1284.02. The up trending channel lines are 1356.62 and 1326.66. The pattern seen on this chart is that of a bear flag. We have a pole and an up trending flag which is bearish. That said, unless or until the channel lines are broken to the downside, we will watch the action of this market bending to the bulls more than the bears. The 60 minute 0.2% by 3-box chart has but internal up and down trendlines. There is an upside target of 1411.98 and a downside target of 1303.53 on the 60 minute chart. The daily 1% by 3-box chart is more bearish with a downside target of 1146.92. Caution is the watchword on this product.
The US Dollar Index has been slowly making its way to the downside creating ever lower lows and lower highs. The index closed the Friday session at 79.72. The Bollinger Bands are currently coming together with the upper band at 80.73 and the lower band at 79.71. The index is just within the lower band and may be due to stagnate a bit before it continues its move to the downside. The 20-period simple moving average is 80.21, the 5-period exponential moving average is 79.89 and the index is currently below both. The RSI is beginning to curl up (though it isn’t issuing a terribly strong signal) and our own indicator is issuing a continued sell-signal. The index is currently toying with the 79.64 level from the October low and briefly dipped below the May support line.
Looking to the weekly chart, the index has broken below an uptrend line in place since May 2011. On the downside, support lies at 79.29 and *gasp* 79 flat. Resistance lies above at 80.14.The 30 minute .05 x 3 Point and Figure Chart is currently in a downtrend, has had several internal down trend lines form, has met all downside targets and has a currently active downside target of 78.25. Long story short, this index will likely back and fill in the early part of the week and drift to the downside hugging the down trend line from the daily chart. Should the index break below 79.64, it is a slippery slope to 79 flat.
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