BullBear Trading: Stock and Financial Market Technical Analysis

Here are some charts that seem to suggest that this very low volume spike to new highs may have been an exhaustion move in stocks concurrent with a bottom in the US dollar.


On the SPX futures we have an overnight gap up over the long term downtrend off the 2007 high on a holiday after a light volume run. Price was rejected after marginal new highs and the short term uptrend has been broken.


On NDX futures we see that price failed to achieve the upper return line of its intermediate term uptrend making marginal new highs before being rejected. The uptrend (previously violated) from the July low is being threatened as well.


The Dow futures rallied to new highs, piercing its intermediate term return line as well as the downtrend from the 2007 highs creating the kind of "throw over" that is typical of an important top.


The Russell 2000 and financial stocks are showing extreme underperformance and non-confirmation of the new highs.


The US dollar index is still arguably showing a bottoming process. Today's intraday reversal from new lows is not shown.

I would look for a higher volume down day very soon that ends near the lows for the day to indicate that a top is in place. A 2-4% up day for the dollar with a clean technical break of trend resistance should accompany this. If we don't see that kind of action in the next couple of days, then the equities rally and dollar decline are likely to continue.

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I think we are talking about an intermediate term top here, if there is one at all.
Well there are different kinds of tops. Long term secular tops and intermediate term tops within an uptrend are two different things. Conditions are likely to be very different in each case.
We are also very close to 50% retracement in S&P 500 Index (cash) at 1121.44 and every trader in the whole world are watching that level and if the market touch that level millions of sell orders will be executed, bulls taking profit and bears initiating sell orders. Today market printed a spinning top candel and intraday high (1105.37) was very close to the trend line from the Oct 2007 top. If the market turns down tomorrow and fool everybody I wonder if both bulls and bears will panic afraid to loose out, well anything is possible, but whats is most probable? As long as the previous Nov 2 2009 bottom (1029.38) is not taken out the trend is up.
If we get a breakout from current levels then that Fib level may be left in the dust quickly.
The log scale chart of SPX shows some interesting information. Seen this way, the market has long since broken trend (green) and has just broken and now retested from below a clear rising wedge pattern.

Steven - as a complete novice looking at this chart, it looks like the S&P may have topped out for this rally in mid-October, yet people are saying it may have topped out today. I'm a bit confused. Are people referring to the Dow when they say today could have been a top?
I recall hearing once that 10% unemployment is a killer for a bull rally.
Not really an issue one way or another. Just look at the message of the markets in the charts and in the action...the fundamentals lag and are always subject to interpretation.
In my opinion tops and bottoms are PROCESSES not single events. One could look at the entire process from August forward at a topping process. It may also end up being a basing process for a fresh breakout.
Dollar is very weak and commodity futures very strong after strong Australian jobs data.

0038 GMT [Dow Jones] Australian economy creates a further 24,500 jobs in October, sending a strong signal to RBA to lift rates further in December. Rise comes on top of strong employment growth in September, follows warnings from RBA that spare capacity in economy set to be used up quickly as economic growth accelerates in 2010. Unemployment nudges slightly higher to 5.8%, but is still relatively unchanged over recent months. AUD/USD sharply higher, rushing to fresh 15-month high of 0.9367. (JEG)
Hmmm - this does not look good. Is it enough to kill the dollar rally?
Yes. We may be seeing a technical failure. It should rally, according to the technical setup, but it's not, which is VERY bearish.

Listen to Andrew Cardwell's interpretation of the RSI picture and general technical setup from Monday's show. I think he may be right. I am sure we will know one way or another tomorrow. If we start to rally in stocks and volume is strong then we cannot stand in the way and fight it.

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