Thursday, July 03, 2014

Vacation Time: July 4th => July 22nd

No posts for the next couple of weeks. Trading volume was light with tight action in Large Caps, but a little give in Small Caps. Existing trends in play until proven otherwise, anything else risks overplaying background noise.

Pointers to keep an eye out for over the coming weeks:

S&P remains on course to tag the 10% 200-day MA envelope (grey dashed line). Channel and/or 20-day MA support may offer pullback opportunities.


The picture perfect response for the Nasdaq would be a back test of former resistance (failed head-and-shoulder reversal) turned support. There is a sharp angled support line, although it's not one I would think would hold out too long on a test - hence my preference for a test of the breakout level.


The Russell 2000 will see profit taking as the May-dip buyers take profits. Look for consolidation around 1,210 before a continued push higher; ideally one lasting 2-3 weeks.  The convergence of channel support to 1,210 resistance might be the time buying pressure forces the move higher. The market has enjoyed a relative advance against the Nasdaq, but yesterday's shift back to the latter index should be watched. We don't want to see too much rotation out of Small Caps, otherwise the breakout will never happen.


I have said little about the Dow (just look at how much it's under-performing against the Nasdaq 100).  But the consolidation 'step advance' is an easier one for trading given such well defined support/resistance levels.


Contributing to sharp under-performance for the Dow relative to the Nasdaq 100 is an acceleration past rising channel resistance. Watch for a possible 'blow out' top, a blow-out top which could still take the index a number of % points higher before it happens.  Shorts will want to see a drop inside the former channel (an effective 'bull trap') if they are going to trade the move down.


The semiconductor index delivered on the 'bear trap'. Still an opportunity for some residual gains off stubborn shorts clinging on. I have added a new nascent rising channel of potential support/resistance to this chart.


So, a few things to watch for in the coming weeks. Ideally, any of these moves should be backed by volume (in the matching ETF for those indices without volume), to get around summer trading noise. There will be few happy to see this rally die, so sell-side supply is likely to be light. An aggressive move down would involve disgruntled traders cutting short their holidays.

Until I return, I will be doing minimal monitoring through my Stocktwits/Twitter feed. And for those who don't know, I have a tumblr of stockpicks here which I update occasionally.

For those who have access to a Bloomberg terminal, the royal 'We' are looking for feedback on our ChartDNA app (type 'APPS DNA' on the terminal).  There is a 30-day no-commit free trial.  Our ChartDNA app has already turned up some interesting long patterns.  For those able to give it a spin, look to screen these custom patterns (you can create them easily: tutorial PDF here): GAYAZ, GAYA, YGAY, JBFC (great short-term, next 5-bar pattern).  These patterns have all been tested against S&P components on daily data over the last year. The ChartDNA Stocktwits/Twitter feed is also available, which offers $SPY forecasts derived from ChartDNA.  I'm happy to set up a demo for anyone when I return; email me at dfallon@activateclients.com or DM on Twitter/Stocktwits (mine or ChartDNA account) to arrange one.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com.
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