Last week at this time, bears were at the plate with men in scoring position and they struck out. That’s the way it went in September. The Dow came within nine points of the all time high and overcame negative seasonal factors, time cycles and candlestick lines to do it. Whether it was the lower probability or not, the only thing that counts is what the market did. While I felt a bearish follow through was a higher probability, I also could not rule out new highs because technically I couldn't confirm anything.
While the Dow and S&P 500 pushed higher, the NDX and Nasdaq made new highs for this leg but are still far from their 2006 highs. The SOX has not even confirmed the highs made for the week in tech. Last week, I wrote about the growing intermarket bearish divergence between the Dow/S&P 500 and NDX/Nasdaq. This has not changed, and as new highs were recorded, the technical divergences actually got bigger. We now have a double negative divergence on the hourly MACD as momentum peaked on August 17. Successive NASDAQ highs made the week of September 11 and September 25 have recorded lower high MACD readings. The highest reading was on August 17 (21.88), the first divergence peak was September 11 (14.32) and finally on September 27 (8.92). It is a similar picture in the NDX.
For the Dow, I can make a case that 24 components are in confirmed uptrends or serious countertrend bounces. Of these stocks, 15 have bearish MACD divergences on the daily or hourly time frame. Of the rest, three have just peaked, five have indicators that are peaking and only one exhibits no divergences. Divergences such as these are not sell signals and can continue for days or weeks. They are warning signs and usually pay off when the market hits an important time cycle.
As we come into the week, Monday is due to be a light volume day due to the Yom Kippur holiday but we enter a period where we are now in the 54-56 day window through Wednesday off the July low and 21 weeks off the May high. Conditions are still ripe for a turn but we are likely to test last week's high again.
Questions or comments? E-mail Jeff Greenblatt at Fibonacciman@aol.com
