Last week I remarked how resilient these markets were. Like the Yankees, bears had a 'Murderer's Row' of factors such as the seasonal factors, time cycles and candlestick formations lining up in their favor. Like the Yankees, bears whiffed in the clutch. The Dow finally set closing and intraday all time highs. This happened even though momentum indicators peaked in August and left divergences again in September. The bulls are like the Mets. The Mets keep winning without their best pitchers, who are injured. The market keeps going despite the fact the MACD still shows the same divergences of a week ago.
Once the Dow broke through, I stated in my Tuesday column it would easily get to 11,880 and it did cruise to 11,869. The Dow is now at a point where it is running into intermediate level interwave resistance. If it can get through this level, it will run into larger degree resistance at 12,360. I do not see it getting there without interference first. That is a longer-term target.
In the near term, we have to see how the Dow reacts to this resistance level. It can pullback here or just consolidate. Turning to the S&P 500 it is likely to hit intermediate level resistance from 1372-83. The question becomes how things turn out when the S&P 500 still has 20-30 points of upside while the Dow is hitting resistance right here.
There are now two important time windows, one near the end of this week and another at the end of next week. The second one has a larger weight and spans Oct. 20 to Oct. 23. For now, we are getting a few cross currents that could keep the markets mostly neutral, at least in the first part of the week. The two leaders of the rally, since 2002, need to be watched closely. The biotech index (BTK) is pushing against important resistance in the form of the 61% retracement of the selling leg from February to May. The SOX has been pulling back but shows no real interest in dropping. The SOX now shows a small positive divergence on an hourly MACD and may be ready to make a bounce attempt as early as Monday. Here is a positive divergence in the same time frame where other indices are showing negative divergences. As we have seen throughout this rally, the Nasdaq needs one or both of these to participate.
While we are now at risk for a small pullback, which could last a couple of days, I do not see a trend change right here. The tech indices have come a long way since July and it seems inevitable they will test highs earlier this year. In spite of the overall weakening technical picture, these markets are still finding a way to win. When there are cross currents like we have now, from my observation it usually leads to a sideways correction. The uptrend is still in place but getting into the late innings. I start the week with a neutral to slightly bullish bias. As the week progresses, the ability of the BTK to take out 61% as well as the SOX to rebound will have an impact on the larger indices. Questions or Feedback? Fibonacciman@aol.com
