Last week we started with the perfect short term bearish set up in the NDX/NQ. We got the confirmation in the first hour on Monday morning and that was it. The fact we were 62 days off the May high didn’t hurt, it actually confirmed our time window. Even tech is very complex these days as we made dueling highs on May 19 and June 5. As it turned out, we seem to have confirmed one high with the first, now we may have confirmed the second window with Friday’s low. You see, Thursday’s low turned out to be 54 days off the June high. If this wasn’t enough fun, the high in May was recorded on the $COMPQ and the NDX took care of June.
On the surface I have to give equal weight to the dueling tech highs as well as their time windows. But is there a possibility one could be stronger than the other? For that I put the Greenblatt Time Zone and different calculations to come up with the fact that not only was last Monday a 62-bar window, it was also a Lucas 199 bar window off the top in technology at the end of October. Here’s the problem, that’s the tech top, not the other more defined 262-week top earlier in the month. Nevertheless, we have a pivot in two degrees of time lining up on the same day. On a time basis, we get a slight nod to the bears.
The next scenario is the two important sector charts we’ve been using as a proxy for market activity. On the one hand we have the SOX, on the other the BKX. Semiconductors and banking is the odd couple keeping this market afloat. The two levels we were watching last week basically held. We needed 60 in the BKX and got it. The 60 level represents an important balance line as well as the potential ending point to a flat correction that began on July 23rd. From there you can see a down-up-down sequence. The SOX also required a numeral ending in 60, 360 that is. The 360 level was important but not as critical as the banking number. It was important for the SOX to hold 360 because it is a 38% retracement line and a 38% retracement represents underlying market strength. The SOX has shown incredible underlying strength since the bottom and has actually had a very favorable technical setup which put it on a buy signal and while a break of this level is not the end of the world, it would take away favored chart status to an important tech leader. The low was 358. This market factor gives the edge to the bulls.
But we are not out of the woods in either banking or semis because both have developed small degree trend channel lines to the down side which have not been broken. The SOX has important overhead resistance in the form of another balance line and the 50-day ma at 367. The BKX has important overhead resistance at 65.30 which is also in line with the declining trend channel line. You can see this clearly on the chart below. This factor gives the slightest edge to the bears only because it is to still be tested and we don’t have a crystal ball.
Now we turn to the Dow. Here’s a chart that is in definite danger of confirming a top. Last Monday it broke an uptrend line since it started chopping higher on July 28. It has yet to develop a down trend channel even though it has developed a topping formation in the vicinity of 11690. It has retraced 50% of the move up which on the surface is neutral. Since the banks have not broken overhead resistance and the Dow does have a definite place of failure we give a slight edge to the bears. This changes if the Dow takes out 11,690 and the banks take out 65.30
There was also a slight decline in the p/c this week indicating options players were attempting to buy the dip on Friday. They could get spanked for that decision.
Finally, we have the oil market. We are absolutely in a time frame which is supportive of a bottom. We also came within ticks of the 38% retracement of the 2007 low and the 200-day ma on an oil continuation chart. Price action was already 10 dollars off the low which is in line with a technical low water mark that briefly touches the bottom only to turn up. Then Friday came with its huge drop. This could be a test of the low. The oil chart affects many other charts. It affects other commodities, gold, gold stocks, energy stocks as well as the fertilizer and steel sectors. I might be leaving out someone but you get the idea. From what I can see, oil was brutal but gold was not. The commodity itself was hit hard but energy stocks were not. The XAU was not hit hard. As long as the stock does not confirm the commodity the sector is in line for a low, even if all we get is a new trading leg. In this case we give a slight edge to the bears. But that benefit to the bearish side may not come while oil tests the low.
Now we come to one of the traditionally slowest weeks of the year. We have a good degree of cross currents as we enter a bullish seasonal time at the end of the month. Nothing has really changed as tech does want to go higher but will be prevented on the days banks want to go lower. Banks have held their ground but have not shown a proclivity to go any higher. We have many cross currents and I tend to look for a neutral week.
It is not too soon to be thinking about the Traders Forum in Chicago October 25-27. This is your chance to meet the great Richard Arms, Oliver Velez as well as John Person, Toni Hansen, Toni Turner and Russell Sands (Turtle method). Information is available at the Traders Library bookstore right here at Futuresmag.com.
