Friday, July 17, 2009

Non-Confirmation of Nasdaq and S&P 500/Dow.....Which Side Will Win?

Click on Chart to Enlarge

There are several things probably worth showing today, but I am going to limit it to the 2 charts above. The most important is the top chart which shows the S&P 500 in the upper pane and the QQQQ/Nasdaq in the lower pane. The important thing was that yesterday the Nasdaq made a new high for the rally but the S&P, Dow, and Russell did not. This is called a non confirmation where some indexes do not confirm the new high (or new low) in other indexes. The key thing here is that this particular occurrence has happened at every major turn down from the 2007 bull market high to the bear market bottom to date. The chart above shows the non-confirmations at every bear market rally since 2007. So while price is in bullish configuration relative to moving averages, it would take the other indexes making and holding new highs to really be technically convincing that this rally will/may continue.

The lower chart shows a 60 min MACD of the S&P 500. It has just made a bearish cross. If you looked at lower time frames you would see bearish divergence on the 30, 15, and 5 minute time frames. Also there is minor divergence on the 60 min stochastics. From that perspective, this appears to be a good time to consider bearish trade if not already positioned. For the blog we are already positioned, so please don't average down unless that was allowed in your orignal money management plan when entering the current trade. A stop should go at a level corresponding to yesterday's highs or at the June highs depending on how loose or tight is comfortable.

For interested chartists the Russell ($RUT or IWM) Index is showing a nice head and shoulders pattern currently. I have a suspicion of what is occurring in the other indexes, but at this point, we have to see major price declines in the next 2 weeks to confirm a top. After the June highs, the S&P never made a faster retracement than the previous rally. That is the kind of action that really tells you that the psychology has shifted, and it is the kind of thing that will need to happen if the market is indeed making its last gasp this week.


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