Sunday, April 06, 2008

Stockcharts.com weekly review

A good week for bulls. How did the Stockcharters see it?

Dr. Joe hints at possible trouble ahead:

DURING an ELECTION YEAR the PRESIDENT'S PARTY does not want to go into an election with a weak economy. It looks bad, never-the-less, it is Here Now. So, the FED RES keeps slapping on 'Band Aids' to stop the bleeding. Yes, the market is weak, but at least it hasn't Crashed... YET. How long the FED RES 'C.P.R.' will continue to resuscitate this wounded market is questionable, but I think they're probably running out of bandages. (3-14-08 dr.joe)

Remember, a RECESSION is all about TIGHT MONEY. If that's true, we're definately there now. But the Yield Curve has Not Inverted yet, which not always, but usually happens. Now here's the kicker... *A Recession starts when we have TWO STRAIGHT QUARTERS OF ECONOMIC SHRINKAGE, which means it can only be DECLARED IN HINDSIGHT. Heck of a deal, huh? (But good to know for sure)
Right now Eco Growth has slowed to 1/2 of one percent.

He has a resistance watch on the Dow:


With full stochastics heavily overbought (could this mean another run on 12,200?)


Joe stole the next one from ChartWatchers - so I will steal it here, but it's a good one:


Joe questions why the Health Care sector hasn't performed as a defensive play? Has indicated support (could be good?)


What will oil do at support? Looks like a descending (continuation?) triangle


As a final Joe special, his Retail Index looks to have strong support at 61.8% Fib retracement:


Ted has further information on his website. Interesting to see if the PowerShares QQQ Trust (QQQQ) can get past the 400-day MA, although there is a sizable gap to his next resistance level at $47.65:


For the Nasdaq this is represented by 2,460 resistance


Yong Pan has his detailed summary. Interesting he sees the Percentage of NYSE Stocks above the 50-day MA as Neutral - under current market conditions I would see it as more bullish. Lots of information to digest here, but notes (as I did earlier this week) the leading action of Transports and Semis.


His EWT count for the S&P is interesting as he is looking for a fifth wave down:


With the UltraShort S&P 500 (SDS) at key support:


Richard Lehman is watching intermediate uptrends, within the context of larger downtrends. He sees the current move as an 'A' wave (which means a lower 'C' wave to follow, or at best - a flat wave):

4/6 -- One must conclude from this past week's activity that the short term upchannels from St.Patrick's Day are still in force and that the minichannels inside this trend are also still heading up, though they flattened from the pace of that last 300 point rise. I still view all of this as the 'A' wave up off the bottom of the decline from last September. What it all means is that we are likely in the final days of this rally and that we need to be ready for another fairly important turn downward on the horizon. VIX is benign at the moment, but the VIX futures are apparently still carrying a hefty premium for April -- supporting evidence for a pending top soon.

Most indexes have a little more room on the upside before hitting upper line resistance, though the RUT is getting close (see the RUT hourly). The financials -- still in their long downtrend from last year -- are actually at the top of their declining channel again. They could possibly break if upward momentum carries further here, but I wouldn't take that as a signal to get long on the group if everything else is peaking. (I'm traveling, so Monday's update will be late at night.)

4/3 -- Aside from giving us some nice put profits this morning (from yesterday)the market didn't give any big clues on short term direction today. The uptrends created by the big move earlier this week are no longer active, but new downtrends are not clear yet. Sideways more often leads to a continuation of the former trend, so that would be up, but hasn't occurred yet either. We're going to need another day to see what's going on.

Maurice has his weekly summary up. To view his charts just follow his link:

The jobs report was released yesterday and boy was it a doozy. The nonfarm payrolls was estimated to come in at -50 K for March, when in actuality it was much more severe than that as some -80 K jobs were lost. This brings the total loss to -232 K in the first quarter. This is the worst jobs report since March of 2003. It is obvious that there is a shrinking jobs market, and the economy is obviously retracting. But there are two things to consider about the report. The market past the test, as it held on to Tuesdays gains closing up over 4 % for the week as measured by the S&P 500. That marks the first time in a month that the market didn't sell off on bad news. Secondly, the jobs report is a lagging indicator, while in contrast the stock market looks ahead to the future. So the worst may very well be behind us.

So the 64 K dollar question is, has the market already factored in an economic slow down for the first half of the year? I think it has! We will get the first quarter real GDP figure in April, and I think this report assures that the number will be negative. These nonfarm payroll numbers are no surprise. But keep in mind, that there is a lag between action and outcome. The Fed's rate cuts should kick in during the end of the second quarter and at that time there will be an infusion of capital into the economy as the stimulus package checks will go out to over 130 million homes. We have also had huge problem with illiquidity. But over the last several weeks the illiquidity problem has greatly improved. I think the March lows will hold up, and the stock market could start receiving regular cash infusions as investors begin to chase the bulls at these levels.

However, we are not out of the woods yet, there is still a matter of overhead resistance. The S&P 500 has resistance at 1396, which is the confirmation line of a double bottom pattern. It also has the intermediate down trendline to contend with, which intersects the DB confirmation line (7th chart below).

All of the indices 60 minute charts now have rising wedge patterns and negative divergence in place (first group of charts on page 1). That should cause us to test the last minor low, which on the S&P 500 is at 1312.

A long-legged Doji candlestick pattern has made an appearance on the Nadaq and the S&P 500 daily charts on Friday. This shows a lack of commitment on the part of buyers, so we could get a short-term Doji top allowing for a contra-trend to test the current rising trendlines and the last minor lows. Trendline support is at 2340 and 1345.

Technical conditions on the weekly charts have significantly improved (see weekly charts on page 5). On the weekly charts the Force index and the RSI broke their down trends on the week closing March 28, but this week the Force index rose closing in positive territory. I'm looking for the MACD histogram to now move in postive territory on the weekly charts, as the MACD is 1 point away from a bullish cross on the S&P 500. The DJIA has already gotten a bullish cross of its MACD, and the Nasdaq is closing in on the MACD signal line. I think we might witness a short-term reaction as we continue to be stuck in a trading range. But I continue to remain long-term bullish based on favoralbe conditions from our trend indicators in the daily time frame. The ADX line is rising off its lows with the positive directional movment (+DI) line on top of the negative directional movement line (-DI). The MACD moved above zero. We also got a bullish cross of the 10-day EMAs rising above the 20-day EMAs this week on the daily charts (see daily charts pages 1 and 2).

As far as momentum going forward, the slow Stochastic (20, 20) on the daily index charts became newly overbought for the first time since our December highs. A BOSO (buying overbought/ selling oversold) entry point would be generated with a close above 1378 on the S&P 500 (7th chart below).

Now for those of you expecting a recession, you might note that the jobs report right before the recession of 2001 showed a loss of over -200 K jobs, which is much more severe than -80 K. So if we do get the first leg down of recession, being a negative GDP number, with a recession being defined by two negative quarters of real GDP, it shouldn't be a hash recession. But I remain optimistic and don't think we will slip into a recession. I think we are just experiencing a sluggish economy.

thechartpatterntrader.blogspot.com

Certainly there is still a degree of negativism, especially in the short term. This may be viewed as bullish by others. I prefer the action of the breadth indicators at this stage which favors bullish positions, just don't forget those stops.

 
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