Monday, July 07, 2008

Stockcharts.com Weekly review

Will this be a busy week, or have all the traders taken their summer vacations?

Maurice Walker notes negative divergence in volatility:

The VIX and the VXN now have negative divergence in place, with both volatility indexes having produced rising wedges. In contrast he QQQQ now has a bullish falling wedge.

But candlestick watch is waiting for confirmation:

We continue to watch for a bottoming candle pattern. So far no candlestick pattern has gotton confirmation. Last Thursday's candlestick was a Doji on the S&P 500, which could be a bottoming southern Doji. The DJIA has a Harami two-day candle pattern on its daily chart. In order for the patterns to be confirmed prices must close above the intraday peak of each pattern. I do expect a bottom to be seen, and I think we will bounce next week.

I have done a little bottom fishing, but unless you have made a mint these past few months, it is in your best interest to wait for a reversal candlestick pattern and then get confirmation. That keeps you on the right side of the trade.

However, I must point out that any bounce here will not form a new intermediate trend. The Average Direction Index (ADX) is extremely extended. As the ADX line and the minus Directional Movement Indicator (-DI ) are at extremes, with ADX at 45 and -DI at 37 on the DJIA daily chart. On the financial ETF (XLF) the ADX is at 50, while -DI is at 34.61. As a divergence has formed on XLF.

The DJIA daily chart also got a bullish touch of its slow stochastic (20, 20). When the stochastic line moves above the slower signal line in oversold territory it produces a buy signal. This is the first time that they have crossed since they triggered a timely sell signal in mid-May. Also watch the RSI on the DJIA and SP 500 daily charts. They currently have downtrends which will likely break sometime next week. The histograms on all the averages now have rising slopes, as down-tick bars keep occurring causing whipsaws.

Maurice long the Qs?


Dr. Joe has a good energy bullish percent chart showing the breakout in the sector:


With the Dow heading to 2006 lows (I made a similar point in my weekend newsletter edition):


With the S&P nearest to touching such support first:


Yong Pan has added one neutral and one bullish signal, but things remain on the bearish side. The blog address is ehhh.. intriguing (or wrong!)


No bottom for the S&P?


But his VIX comments/chart from 2001/03 caught my eye (again, his chart settings are excellent):


Ted Burge has the S&P 100 at support:


With tech averages near support too:



Finally Richard Lehman is remaining cautious:

7/3 -- Another half day -- another touch of the lower channel lines -- another half-baked attempt to rally before giving up. One-shot pieces of good news (which aren't even really good news) are not going to get this thing out of the doldrums. Enjoy the fourth!!

7/2 -- So much for another failed bounce. Broad index channels held trend, but the Toronto (TSE) index broke and fell 3% as did the XLE. Once again XAU fell strongly even while GLD was up ?? We're still oversold, but as long as people or institutions are looking to sell on every little rally, this market will drift lower still. The only hope for important longer term support near here is the Dow's 3-year channel line -- and the other indexes are not even close yet.

7/1 -- Another touch of the lower short term trend lines and an intraday reversal for the broad averages looks better than what we've had recently. The window dressing is now over and legitimate buying can occur. After the slope accelerations downward, we were certainly due for a bounce. The key now is getting up through the top of the short term channels to get a bonafide upchannel going.That won't happen right away unless this really picks up strength, so we'll need to watch and see.It will also require some market leadership. So far the large caps are lagging, so it may come from the little guys.

6/30 -- Another anemic rally attempt goes nowhere. Nothing really changed on the the main trends, but the little upward mini from last week may already be history. Maybe there was additional window (un)dressing today (getting rid of embarrassing holdings for the quarter end). We are still oversold and at the lower support boundaries of most channels, so we could get another bounce attempt.



Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website
 
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