Last week was a down week but it wasn't the type of down week we've grown accustomed to. In the past few months, almost every bear week brought technical damage and new relative lows. Last week neither happened. We finally were able to take out near term resistance levels which were troublesome the entire month. The tech indices even filled the gap created on February 29 which led to the final leg down. This is progress, even if it is one baby step. But after initial resistance was conquered, markets spent the majority of the week in a slow drip downward.
It is interesting to note that in this slow drip downward, the p/c continued to rise near 1.20 which implies there is an element of fear entering these markets. This fear is coming into the markets despite the fact the NQ/NDX has retraced 38% of the move off the bottom. That doesn't mean we can't continue to drop, but it is encouraging to the bullish case to see this much fear come in at a minimum retracement level. Intelligent hypothesis suggests if we were to continue to fall enough to retest the lows, the p/c could once again be at extreme levels which means any drop won't go beyond the low end of the range. If you look at past waves, you'll see the kind of fear we have now at this retracement level is conducive to a move north.
The fly in the ointment here is we have even more important overhead resistance just above last week's high. Tuesday's high was a hair under 1832 and the more important resistance from early February is around 1864. I've told my readers for nearly two months it is those highs right after the January bottom which is the point longer term bears should be protecting profits. It would seem to me that I'm not the only technician/trader with that idea. If we take out that level, you may see a tremendous burst of short covering which would lead to legitimate buying. Since we haven't challenged that level yet, smarter long term bear money has no reason to pull the plug. It is for that reason I believe we had last week's pullback. On the one hand, legitimate buying hasn't come in. On the other, we don't see much selling either as a good amount of it may have already dried up on the last test of the bottom.
One of the leaders of this rally has been the $BKX which was the first chart to clear near term resistance. It went almost straight up and consequently now come back nearly straight down. As we come into the new week, we are a hair below the 61% retracement level but more importantly at the 62 hour low to low window. Pay very close attention to banking stocks on the open as they are going to determine the direction in the early part of the week. They have a window of opportunity to elevate first thing Monday morning. If they can't elevate off a 62 hour low to low near 61% retracement, it then becomes a higher probability they will retest their lows. The SOX is in the same boat at 62 hours. The BBH is at 38% but only around 41 hours.
The 38% level is very important because in my study of retracements, legs that can only muster that minimum level of selling pressure have the greatest chance for longevity in terms of both price and time. When we go beyond that to 61% the longer term aspirations are greatly minimized. But here's something else to watch. The NDX made near term highs near the 1760 level on March 5, 12,14 and 19. We will open the week to test this level. This is a key test of polarity because if we turn up from here, polarity flips and important resistance now would become support. If that were to take place it would mean a very serious test of the early February high. A failure to hold polarity here wouldn't be fatal to this rally, but it would be another strike against it. As far as I'm concerned, it already has one strike with volume only at 2.39B at that 91 point tech party. A failure at this polarity level would likely lead to an ultimate failure at February resistance if we can eventually get that far.
What you should take away from this column isn't necessarily a prediction but the observation of how long the rally is likely to last. If buyers are well organized, they'll take advantage of these opportunities to start the week. If not you'll be able to draw your own conclusions.
I am now confirmed as one of the speakers for the Futures I-show on May 6. The ongoing saga of my new web site continues but you can now navigate your way to the coaching program. As a thank you to my long time readers Lucas Wave International is offering an introductory program at a bargain price. Basically, I do a comprehensive break down of your trading charts, highlight your strengths, make a report of findings for improvement and together we go over this in a one hour individual coaching session. We also help your learning curve for the time cycles.
