Last week we completed the 232-237 (including +/-1) day window with the July 2006 low. The outlook coming into the week was a correction the first half of the week and recovery in the latter part. I was looking for a recovery to come in the time frame associated with the Fed meeting. This outlook was close as the markets turned back up to varying degrees on Wednesday. Since Wednesday was the last day of the window we can make a case that over the past two weeks this window created a high and a low.
More importantly was the fact the NASDAQ complex failed to confirm the spike below June support in the S&P500. We had a case where tech never did confirm the corrective activity in the Dow or S&P500. This may explain the early recovery and the fact tech is back to retesting the top end of the range again. Within the tech sector, we have two important setups to keep an eye on. First is the SOX. The SOX broke above its range briefly and did so on the 230th day of its cycle with July 2006 low. This was one of the guideposts mentioned here last week. While it did find a low on day 233 (Fibonacci) of the cycle, it also took out it prior small degree 4th wave low in the process near 497. An orderly pullback would have held that line. But it did not and it also may have overcompensated with the spike back up. I would view the intraday sequence as an overreaction in both directions and the likely outcome is a day or two of sideways action before this sorts itself out.
The other important guidepost is the BBH. It took out near term support at 172 which now opens a new can of worms. Since statistics for June just completed my charts recalibrated the longer term support levels which is 157.60 for the 200 week moving average and 155 for the 50-month moving average. At 260 weeks to its own bear market bottom this chart has the chance to find an absolute low at very long range support which hasn't been tested since 2003 on the next two weekly bars. The gap through support on the daily chart looks hideous and because it gapped down at intermediate level support the chart is in danger of creating a longer term change of polarity. I'll be monitoring this chart every day as its outcome likely will have broad implications on the bull or bear side.
For now, the situation is one of near term support represented by the June low holding. Our next important time windows are about a month away. We still have not hit key resistance levels in the form of NASDAQ 2,645, S&P500 1,550s or Dow 13,753 which have been mentioned in this space for the past two months. The NASDAQ/NDX trendlines show slightly defined uptrend lines which now sit at approximately 2,575 and 1,910. The last two hours of Friday's session were an attempt to take the markets down which failed as the NQ hourly bar left a big lower tail. The final half hour p/c readings spiked up. What isn't clear is if this was a result of spike down or recovery up.
We are coming into a holiday shortened week which traditionally has a bullish bias to it. My work is getting mixed signals on the intraday level but slightly bullish readings on the daily level. I think we are close to being in a deadlocked position. I'd give the bulls the slight edge here that should keep us in this trading range. We could see retests of the highs again but I don't have the confidence we can break through. My old trading partner used to tell me it was times like these where its best to get out to the fishing pole. It may very well be a week where the best thing you can do is enjoy the holiday.
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