Monday, April 20, 2015

Suspect Rally Today - Plunge Ahead?

Today the Nasdaq rallied rather sharply and the QQQ filled Friday's gap down.

The Dow 30 and SP 500 also made nice advances.  However, across the board volume was well lower than Friday, and even below the 50 day moving average on several indexes.

There are several signs that this move may be short lived.

  • Today the McClellan oscillator closed below 0 despite a sharp rally.  I dont have stats on this, but will note that the July 2014, Sept 2014, and Dec 2014 tops all occurred with the ratio below 0.  While the price today is not a new all time high in the NYSE, Thursday was an all time high, and today's close is equal to the highest closing prices other than last Wednesday and Thursday.  Similar days would seem to be 3/2/15 and 9/5/14 which both were key sell points for the short term trader.
Click on Chart of McClellan Oscillator to Enlarge

  • My Panic Indicator shows complacency on par with the recent short term tops on 2/25/15, 3/23/15, 4/13/15.  Yet price is below those highs, suggesting a potential cap at this level of the price range given the implied market psychology.  
  • Select SPDR etf's show that industrials and utilities were the largest gainers, and banking and housing were among the weakest performers.  This seems like a defensive rally as opposed to a "healthy" risk-on rally.  

Click on Chart of SP 500 to Enlarge

The SP 500 is within the bounds of a contracting symmetrical triangle currently.  Triangles are often continuation patterns, suggesting a possible upside breakout.  However, a triangle is often the second to last move in a price pattern in a trending move, and can be the final pattern of a complex corrective pattern.  

Given that price is within the triangle and well above the mid point of the triangle, it seems sensible that price may come down and further test the midpoint of the triangle or even the lower boundary line -- even if the pattern holds up as a bullish continuation.

My feeling here is that price will likely decline back below Friday's low, and may be headed back towards the February lows.  So this is not really a trade strategy, but just an analysis that the current price level may be a very low risk short.  A stop loss of a new all time high basis the NYSE index would be appropriate from my perspective if shorting an index here.

Click on Chart on NYSE to Enlarge


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