We come to another important anniversary this week. Need to guess? We talk about it all the time here. Yes, if it is convention time it’s almost time for the first anniversary of the NDX low. So whatever you think of this rally, the NDX is almost as many days off the bottom as it was down in the first place. Yes, there is a minor technicality as it missed the low by about 21 points in March. Amazingly, a year later the trend is still strong.
But that could change if the dollar turned strong. Last week at this time the dollar was testing a channel line and failed again. It made a new low and came back to test the channel line again. The week closed with the greenback right near the line. That one is coming to the first anniversary of an important pivot as well. You may remember the last time we convened in Las Vegas the President-Elect mentioned something about nominating this guy named Geithner to run the Treasury Department. The dollar topped and now we are a year down the road.
Last week we talked about tests of the high. All of the indices we follow made new highs except for the NDX and Russell. The Russell is lagging badly. We know that chart topped earlier in September, missed the new high in October and now can’t seem to get out of its own way. Here’s something to keep in mind. The Russell topped on July 13, 2007, a full three months before the rest of the market. This index is leading but its not the kind of day to day leader like the NDX is. It’s the kind of chart that stays out in left field but we ignore the warning at our own peril. The day usually comes where it has a payoff. On the hourly chart below it has hit a high not only on the 61% price retracement but also 62% time retracement.
Turning to tech, there is an intermarket divergence there as the NASDAQ did not confirm new highs made in the NDX. Remember, it was the NASDAQ that had the Pi relationship due to its March low. But my readings are suggesting that even though we have a divergence, the NASDAQ is not done going up.
There are divergences in other areas as well. The BKX still appears to be weakening while the SOX is hanging tough. The SOX is consolidating at the 61% retracement and the jury is out on that one. As far as the BKX goes, it has no margin for error. It needs to hold the 42.70 area. A meaningful break of Friday’s low is going to mean we’ll get a retest of the low set earlier this month. Oddly enough, the HGX looks much better than the banks.
But suddenly the chart that has a bit of trouble is the oil chart. Oil was in a position to break higher as it tested polarity with the June resistance point. But conditions changed in the last couple of days as it slipped lower and now should head down to 74.50 where another key decision point will come. What happened was the fresh low that materialized in the dollar was met by new highs in Gold but not oil. So it’s not always what happens that we need to watch, but what does not happen. As far as oil goes, here comes the payoff.
So if we apply the same logic to the NASDAQ and Russell, the payoff is still building. We have a better housing chart and a lousy banking chart. They can’t both stay right heading in different directions. While the market is always "right" there are degrees of right and this situation will get back in sync sooner or later.
In yet another divergence, we have new highs in the XAU and Gold charts but not Silver. Silver is like the Russell where it can lag for periods of time but we all know that in the best moves of the past couple of years we’ve had a very strong Silver chart.
With all of these divergent view points, what could possibly keep this market going? We haven’t looked at biotech in some time. It has come off the low and is lagging just like the Russell. It has come off a low, looks favorable but will need to hold the 875 area. If it can do that, tech can keep rolling even with a neutralized semiconductor sector. But if biotech cracks, the rest of technology won’t be far behind. So, the most important areas of the market look like this:
SOX – neutral
Oil – slightly bearish
Mining – slightly bullish
Banks- slightly bearish
Biotech – slightly bullish
Housing – slightly bullish
Greenback – slightly bearish
Yes, the Dollar gets its own sector. But in the bear market, everything got hit because housing and banks were unified to the downside. Now, they are not unified. Overall, you give the benefit of the doubt to the trend in place until you get some evidence to the contrary. For now that is slightly bullish. But we are really all over the map. Coming into the week there isn’t a clear indication yet.
This is the week the trading community does their autumn migration to Las Vegas. It is the most fun trading convention of the year. Where else can you meet fellow traders, educators, eat the best food and be in a city that never sleeps? I’m talking on the Russell and the U.S. dollar in a presentation that covers how to capture important turns in markets. We may be using these indices as examples, but you can apply it to any chart.
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