Last week's projection was for a pause in the advance. What actually happened in the market leading NDX was a half-hearted attempt at a pullback which didn't even fill the gap up from a week ago Friday. As most of you know, a gap up creates a support zone of S1 to S2 which implies the entire territory of the gap could act as the support zone. In a weaker market, the gap will be filled in its entirety. A stronger market will give us a move near the upper S1 support area. It is a show of strength. A word of caution is appropriate here: When a gap is not filled on the first attempt, many times there will be a second attempt. This is a possibility that can't be ruled out or ignored. Even though we begin the week at NDX 1918, there is more than a remote chance we could get a move down to 1846. But the highlight of the week was the NDX retesting the April 4th high which was the 38% retracement level of the whole bear leg down.
If you check out the daily chart, what seems to be materializing is an NDX that is making a strong attempt to build a base right on that 38% retracement line. My other theme from a week ago was for those of you who have good bear profits from October or November to strongly considering banking that money. If we continue to consolidate across the 38% line, it is a sign of higher prices to come.
It’s not a guarantee we continue to do that. Another possibility for the market at this point could be an equivalent pullback to the lower end of the trend channel in a move that mimics the move from April 7-15. If we are on the upper end of the trend channel here, the lower end would be around 1860. There are actually two reasons why we could have a move down to the lower end of the gap as discussed above.
But here's a reason why it wouldn't happen. A look at a Dow hourly suggest there might be a diagonal wedge developing. It’s unclear and not well organized yet but we know that wedge patterns have converging trend channel lines, not parallel ones. If the NDX would elect some type of wedge pattern, it will not pullback to 1860, the limit would likely be near 1880.
Last week we also discussed GOOG, which gapped up mightily on the prior Friday. Often times, a gap like that will elicit a flat out attempt to fill and test support. We are a week removed from that gap and it looks like GOOG is attempting to set up shop at these higher levels which would give us a bullish outcome. We also discussed the banking sector which pulled back off the 162nd hour of the pattern to end the prior week. When last discussed, the banking sector had a higher low but then a lower high. The lower high produced a 61% retracement to that secondary low. It could have been much worse, right? During the bear phase, in all likelihood we would have printed a new low. The fact of the matter is we didn't. The 162nd hour high was taken out and we are back at the 61% price retracement of the move off the March 17th spike up to the March 24th high. That secondary low was recorded on April 14th and the roller coaster of low to high to low to high again is 61 hours. We are 61 hours up to the latest leg at a minor or intermediate level 61% retracement line. The implication here should be this cluster ought to act as resistance. In terms of the financials, we should get a slow start to the week, but the lower high condition discussed last week is negated. Now we are just dealing with overhead resistance again.
The housing sector is another area where we made a good low based on a combination of price and time which has spent more time going sideways than up these past weeks. In the past few days a key 61% line was retested and held by 14 cents. We closed at 144 and the low isn't technically confirmed until we take out first resistance at 148, but since is the kind of set up we look for to confirm key support areas. One can even buy it here with a very low risk reward ratio. Its one of those situations where the probabilities favor higher prices but if you wait to get ultimate confirmation the stop out point is too far away.
Overall, tech is now in the 121-127 day window off its high in late October and between the 29-34 day cycle off the March low. The implication is choppy action for much of the week. This week we are due for another one of those Fed interest rate holidays. We've heard there is an excellent chance they'll do nothing this time. You can believe it. The cycles are entering a phase where we could be waiting to get close to the 127th bar off the high and 34th bar off the low in terms of the tech sector. Like the Seinfeld show, this could be a week all about nothing. If you are an intraday player, you may be finding yourself being able to catch intraday turns. Many days, the bias is up or down and not really good for going against the flow. This week, there may not be a flow.
Overall, the trend established in March should stay in force. We are 136 days off the Dow top in October. We may have a chance to top at day 144 but that isn't in the cards for this week. We also have an opportunity to top at day 163 which would give us a 55 day move to the upside. We are not even close. Keep in mind that a key bear market rally in the old bear back at the turn of the century failed at the 88 day cycle and again at day 123. The Dow is already beyond those numbers and in another week, so will tech. I realize we were incredibly oversold at the bottom, but we are starting to come to a point that at least statistically, we may conclude a longer term bottom has been registered.
Next week is the Futures I-show. There is still plenty of time to sign up.
