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Saturday - June 03, 2006

Dow Consolidates Above Key Support

The Dow came down hard in May, but found support at 11050. This support level stems from January resistance and the April low. A key tenet of technical analysis is that broken resistance turns into support. The Dow broke above 11050 in February and this level turned into support in April and May.

Since reaching support, the Dow consolidated over the last two weeks and a pennant type consolidation is forming (gray oval). The sharp decline created an oversold condition and the Dow needed to work off this condition. A two week trading range is just the trick, but the pennant is a bearish continuation pattern. A move below the May low would confirm the pennant and call for a continuation of the May decline. The obvious target is the 200-day moving average around 10850. It is also worth noting that the Dow was the only major index NOT to move back above its 26-May high on Thursday and this shows relative weakness. The S&P 500, Russell 2000 and Nasdaq all surged above their 26-May high on Thursday.

For a bullish resolution to this consolidation, I will be watching resistance at 11300. This resistance level stems from the 50-day moving average, the 26-May high and the October trendline extension. The October trendline provided support until May and now acts as resistance. A break back above 11300 is needed to put the Dow back into the bull mode.

By Arthur B. Hill - Sat 03-Jun-06 at 04:11AM in Indices
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Friday - June 02, 2006

An Uninspiring Bounce

Nasdaq volume was above average, but below the levels seen in May and not that impressive overall. You can also see that the Nasdaq has yet to break back above broken support and there is a resistance zone between 2235 and 2300. The one day bounce is impressive, but I think this resistance zone is even more impressive.

NYSE volume was just average and below the high levels seen in May. While money moved into big techs, it was not as enthusiastic about non-techs and this bounce off support is not that impressive - yet.

Also notice that the Dow did not even make it back above last week’s high. The Russell 2000, S&P 500 and Nasdaq all broke last week’s high and the Dow is lagging.

By Arthur B. Hill - Fri 02-Jun-06 at 02:15PM in Indices
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Tuesday - May 23, 2006

1987 All Over Again

The Times.co.uk reports:

”A report by Barclays Capital says the run-up to the 1987 crash was characterised by a widening US current-account deficit, weak dollar, fears of rising inflation, a fading boom in American house prices, and the appointment of a new chairman of the Federal Reserve Board. ”

There was not much time to get out in 1987 as the index dropped from 450 to 300 in two months. The big gap on 19-Oct is known as black Monday and selling continued the next seven days.

Prior to black Monday, there was a bearish chart signal as the index formed a weekly bearish engulfing on 9-Oct and gapped down the very next week with another black candlestick (16-Oct). This gap broke support from the September low and confirmed the bearish engulfing. Notice that the index never filled the gap and the inability to recovered shows just how weak the bulls were. The window from 9-16 October was small, but provided a chance to either reduce exposure or hedge positions.

What about now? The Nasdaq broke 2200 in November and worked its way high in 2006. The index moved from 2200 to 2380 from January to May and then lost it in two short weeks. That is a lot of work going down the drain and this is not the stuff bulls are made of. I consider this decline excessive for just a bull market pullback, but prefer to refrain from predicting a crash. Right now the November breakout at 2200 has failed and this is enough to be bearish on the Nasdaq.

By Arthur B. Hill - Tue 23-May-06 at 08:56AM in Indices
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Wednesday - May 03, 2006

Large Caps Starting to Lead

It is only for two weeks, but large-caps are starting to lead. This table shows the major indices sorted according to the McClellan Oscillator. Notice that the Dow, S&P 500 and S&P 100 all have positive McClellan Oscillator readings. In addition, the McClellan Oscillator moved into positive territory yesterday for all three. Meanwhile the S&P SmallCap Index, S&P MidCap Index and Russell 2000 remain with negative McClellan Oscillator readings and failed to forge bullish crossovers. This shows that breadth for the small and madcap indices is weaker than breadth for the large-cap dominated indices. Also notice that the Dow Averages have four of the top five spots.

You can also see this table sorted by sector, industry or ETF family at ETFInvestmentOutlook.com (click here)

By Arthur B. Hill - Wed 03-May-06 at 07:22AM in Indices
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Monday - April 24, 2006

A Pair of Bearish Engulfings for the Nasdaq

Tech bulls were rattled on Friday as the Nasdaq opened strong and closed weak to form a big bearish engulfing pattern. The second attempt to break above 2350 failed, but the index remains above support at 2300 and a total breakdown can be averted as long as this level holds. A break below 2300 would negate the late March breakout and turn the daily chart/trend bearish. Techs were leading the recent rally and their leadership would be sorely missed.

By Arthur B. Hill - Mon 24-Apr-06 at 03:26PM in Indices
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Tuesday - April 18, 2006

NDX Equal Weight Holding Breakout

For a different perspective, here is the Nasdaq 100 equal weight index. NDXE broke above resistance at 1140 and broken resistance now turns into support. The index firmed on Wednesday and Thursday, but fell again Monday. A strong index should hold its resistance break and further weakness below 1140 would be quite negative. Despite the sharp pullback over the last six days, the resistance breakout has yet to fold and this chart is more bullish than bearish.

By Arthur B. Hill - Tue 18-Apr-06 at 10:26AM in Indices
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Dow Still Falling Within Flag

The Dow remains oversold and near support from broken resistance, but cannot manage a breakout or bounce to reverse the falling flag. This is the second flag in as many months and there is a lot of support around 11100. The prior flag reversed with a long white candlestick on 10-Mar (white oval). For this flag to reverse and the Dow to turn bullish, I would want to see a break above 11200 with a nice long white candlestick.

By Arthur B. Hill - Tue 18-Apr-06 at 10:25AM in Indices
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Wednesday - April 12, 2006

Dow Forms Another Flag

It’s now or never for the Dow. Another flag has taken shape and the Average is trading near the early March breakout. Notice that the prior flag found support near the mid February breakout (gray oval). The Dow is showing signs of firmness and now we just need a catalyst such as that provided by the long white candlestick on 10-March. A strong close above 11000 would provide this bullish catalyst.

By Arthur B. Hill - Wed 12-Apr-06 at 07:13AM in Indices
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Tuesday - April 11, 2006

Stocks and Rates Moving Higher

While bonds fell off a cliff in 2006 and interest rates moved higher, the S&P 500 Equal Weight Index (RSP) kept on rising. Stocks and interest rates are positively correlated this year. Rising interest rates, oil and gold cannot be considered good news yet stocks still move higher. The ability to advance in the face of negative news is bullish. Perhaps stocks are looking ahead to a positive second quarter earnings season?

By Arthur B. Hill - Tue 11-Apr-06 at 06:20AM in Indices
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Thursday - April 06, 2006

Nasdaq Holding Breakout

What’s bearish about this picture? Nothing – zero, zilch, nada. After the Oct-Jan surge, the index formed a triangle consolidation to digest the gains. This is pretty normal stuff. The triangle breakout signals a continuation higher and the upside projection is to around 2450-2500. There is a resistance zone around 2300 that turns into support and the bulls have nothing to fear as long as this zone holds.

By Arthur B. Hill - Thu 06-Apr-06 at 10:31AM in Indices
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Tuesday - April 04, 2006

A Bull Flag for the Dow Diamonds (DIA)

Here is the Dow Diamonds (DIA) with the pattern du jour for the large-cap non-tech indices. After a mid March surge to new highs, DIA met resistance around 113 and pulled back over the last two weeks. The pullback looks like a falling flag and it is quite similar to the late Feb/early March pullback. The stock is nearing trendline support and also support from broken resistance around 111. An inverted hammer formed yesterday and a break above 112.5 would be bullish for DIA and the Dow.

By Arthur B. Hill - Tue 04-Apr-06 at 10:43AM in Indices
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Friday - March 31, 2006

The Dow Retraces

Even though the Dow has suddenly weakened, the big trend remains up for this key Average. The Dow surged in March (~10900 to ~11350) and the current decline has retraced 50-62% of this advance. This is a normal retracement so far. There is a lot of support around 11050 from the October trendline, broken resistance and the Feb-Mar flag. I would not become too concerned as long as this level holds.

By Arthur B. Hill - Fri 31-Mar-06 at 05:17AM in Indices
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Tuesday - March 28, 2006

Stocks and Rates Rise Together

But wait! The stock market appears to like rising interest rates. The 5-year Note Yield ($FVX) bottomed in September and the S&P 500 Equal Weight Index (RSP) bottomed in October. Both have been rising since January and both are trading above their November highs. What the….? This means that the initial reaction to hawkish comments from the Fed would likely be down, but the larger uptrend could still pull trump. Key support at 170 holds the key. It just keeps on rising.

By Arthur B. Hill - Tue 28-Mar-06 at 05:06AM in Indices
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Friday - March 24, 2006

Stocks Reflect Economic Strength

Why should we expect rates to rise? Because the broad market is strong and this is more indicative of economic strength than weakness. The S&P 500 Equal Weight Index (RSP) notched a new all time high last week and remains in a clear uptrend. That trend may have slowed over the last four months, but the index still managed to move above 170 in January and hold that breakout.

By Arthur B. Hill - Fri 24-Mar-06 at 06:43AM in Indices
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Nasdaq Consolidates Near Resistance

Looking at the Nasdaq over the same timeframe, a picture of relative weakness emerges. The Nasdaq surged in January and then consolidated the last three months. The index tried four times to break above 2300 and cannot seem to hold this level for more than a week. At worst, the trend is flat. At best, we have a sharp advance (2050-2330) and a triangle consolidation, which is a mere rest in the ongoing uptrend.

By Arthur B. Hill - Fri 24-Mar-06 at 06:43AM in Indices
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Tuesday - March 21, 2006

Russell 2000 Turns Indecisive

The medium-term trend for the Russell 2000 ($RUT) remains clearly bullish, but the Russell 2000 ETF (IWM) is getting indecisive at its new highs. Two doji formed over the last two days and the stock has not moved much since surpassing 74 on Wednesday. A move below 73 would be short-term bearish, but still within a larger uptrend. Key support on the daily chart is set at 70. A move below this level would break the blue trendline, the 50-day SMA and the Feb-Mar lows. Then, and only then, will a downtrend begin.

By Arthur B. Hill - Tue 21-Mar-06 at 02:51PM in Indices
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Friday - March 17, 2006

The S&P MidCap Index Tests Resistance

The current consolidation (755-785) is just a bigger version of the prior consolidation (black oval). In December, the index broke through 750 on the third try and moved above 780. This is the third try to break above 785 and a successful breakout would target a move above 800.

By Arthur B. Hill - Fri 17-Mar-06 at 07:06AM in Indices
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The S&P 100 Takes the Lead

While the S&P MidCap Index tests resistance, the S&P 100 is trading above resistance and large-caps are leading. Dec-Feb amounts to a massive consolidation and the breakout signals a continuation of the Oct-Nov advance. I will be watching the October trendline and March low for a trend reversal

By Arthur B. Hill - Fri 17-Mar-06 at 07:05AM in Indices
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Thursday - March 16, 2006

A New 52-week High for the Dow Industrials

Is a new 52-week high bullish or bearish? Some may consider the Dow overbought and in a resistance zone from the 1999-2001 highs. Yes, the Average is getting overbought. And yes, there is a lot of resistance around 11000-11500. These are potential problems. The current state of the Average is bullish though and we should expect further gains.

By Arthur B. Hill - Thu 16-Mar-06 at 09:17AM in Indices
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New All Time High for Dow Transports

Transportation (rail, air, land) is the backbone of our economy. Goods move when economic times are good. Judging by the Dow Transports, it would appear that both goods and stocks are moving. First, it was the truckers. Then it was the airlines rebounding from the abyss. Now it is the railroads surges to new highs. The Dow Transports only has 20 stocks and it does not take much to move the Average. Whatever the reason, the new highs in the Dow Transports and Dow Industrials make for a Dow Theory bullish confirmation to keep the bull market alive and well.

By Arthur B. Hill - Thu 16-Mar-06 at 09:17AM in Indices
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Nasdaq Still Lagging

While the Dow and S&P 500 move to multiyear highs, the Nasdaq has yet to break resistance. The index formed a triangle over the last few months and is nearing upper trendline resistance. The surge off support is impressive and a break above 2330 would signal a continuation of the Oct-Nov advance. This consolidation has been a long one, but now it appears that stocks are preparing for another leg higher.

By Arthur B. Hill - Thu 16-Mar-06 at 09:16AM in Indices
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Friday - March 10, 2006

Dow Forms Falling Flag

The Dow has a falling flag working over the last three weeks (magenta trendlines). This is a corrective pattern that requires confirmation with a breakout at 11100. Such a move would signal a continuation of the February advance. As long as the flag falls, we must entertain the broadening formation, which is a big bad bearish reversal pattern.

By Arthur B. Hill - Fri 10-Mar-06 at 01:49AM in Indices
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NDX And Dandruff

The Nasdaq 100 has a head-and-shoulders pattern working over the last few months with neckline support at 1633. The index already broke rising wedge support and failed to hold its gains on Thursday. Further weakness below 1633 would target a decline to around 1500. Ouch.

By Arthur B. Hill - Fri 10-Mar-06 at 01:49AM in Indices
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Nasdaq 100 Equal Weight

This chart shows the Nasdaq 100 Equal Weight Index. The “normal” Nasdaq 100 is weighted by some fancy formula at the Nasdaq. The weighting process using market cap, but also some other variables and that prevents the largest stocks from dominating. The Nasdaq 100 Equal Weight treats all 100 equally and is good to measure broad strength or weakness. This chart is holding up much better than the Nasdaq 100. A trading range formed over the last two months and the index is testing support. Notice that a shooting star formed at resistance last week (blue oval) and a doji at support this week (gray oval). A break below 1090 would be bearish.

By Arthur B. Hill - Fri 10-Mar-06 at 01:49AM in Indices
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Thursday - March 02, 2006

Russell 2000 ($RUT) Continues Its Dominance

Most of the yesterday’s headlines focused on the Technology and the Nasdaq. That may be the new story, but the old story remains the same. The Russell 2000 (+1.60%) gained more than the Nasdaq (1.46%) or any other broad index for that matter. In addition, the Russell 2000 closed at a new all time high. I highlighted the flag breakout on 21-Feb and just over a week later this signal is bearing fruit. It is just a continuation of the existing uptrend and there are NO signs of weakness.

By Arthur B. Hill - Thu 02-Mar-06 at 06:50AM in Indices
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Friday - February 24, 2006

OEX Head-and-shoulders Still Around

There it is again. The S&P 100 surged in November and consolidated the last three months. The pattern looks like a head-and-shoulders reversal, but it has yet to be confirmed. A move below neckline support would confirm this bearish reversal pattern and reverse the medium-term uptrend. Yes, I still consider the medium-term up. Even thought the index has been flat the last three months, the November surge sets the bullish tone and this consolidation is merely a rest. Up + Flat = Bullish until proven otherwise.

By Arthur B. Hill - Fri 24-Feb-06 at 05:33AM in Indices
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Thursday - February 23, 2006

Nasdaq Volume Just Average

The Nasdaq had a pretty good rebound on price, but volume was just average and did not exceed the 2 billion share mark. We still need to see more with a breakout above 2300 and higher volume.

By Arthur B. Hill - Thu 23-Feb-06 at 06:34AM in Indices
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NYSE Composite Closes at New High

The NYSE Composite closed at a new all time high yesterday. The surge over the last six days is third surge of the year (gray ovals) and this keeps the medium-term uptrend in tact. There is one small problem brewing though. NYSE volume has been declining since late January (blue line) and yesterday’s volume was barely above average. This is a warning, but the index would not turn bearish unless it breaks 7900 support.

By Arthur B. Hill - Thu 23-Feb-06 at 06:33AM in Indices
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Tuesday - February 21, 2006

Russell 2000 Flag Breakout

The Russell 2000 ($RUT) is not far behind as the index broke falling flag resistance last week. The big trend is clearly up and this latest breakout simply signals a continuation higher. I am watching the mid January low and October trendline for signs of trouble.

By Arthur B. Hill - Tue 21-Feb-06 at 07:27AM in Indices
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Dow: Diamond or a Broadening formation?

There were some mighty big breakouts last week. The Dow led the pack with a diamond breakout a week ago Tuesday. This breakout is holding and there is no reason to doubt it as long as broken resistance at 10900 holds. The bears out there will not doubt see a broadening formation evolving (gray trendline extensions). This may indeed be the case. However, it is not a threat as long as 10900 holds.

By Arthur B. Hill - Tue 21-Feb-06 at 07:27AM in Indices
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Wednesday - February 15, 2006

Nasdaq Laggeth

The Nasdaq is lagging. While the Dow and Dow Transports surge higher, the Nasdaq remains within a falling wedge and well below its February high. A rally is hardly broad without the Nasdaq participating and this index needs to move above the February high to break the fall of the wedge.

By Arthur B. Hill - Wed 15-Feb-06 at 11:20AM in Indices
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Dow Transports Record New All Time High

The Dow Transports, which is another relatively narrow average of just 20 stocks, is also strong and breaking out to new ALL time highs. The Dow Industrials remains below its January 2000 high, but is poised to record a four year high. The Dow Transports is getting a bid from falling oil prices.

By Arthur B. Hill - Wed 15-Feb-06 at 11:20AM in Indices
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Dow Breaks Diamond Resistance

The Dow broke Diamond resistance with a long white candlestick and strong gain. 28 of the Dow components were up on Tuesday and the old industrial players are leading the way higher. The broad indices (those with more than 30 stocks) are lagging though and remain well below their February highs. Are these 30 stocks leading the way for the other 5000+ to follow?

By Arthur B. Hill - Wed 15-Feb-06 at 11:19AM in Indices
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Friday - February 10, 2006

The Nasdaq Corrects Within Uptrend

The Nasdaq keeps going and going and going. The structure of this chart shows a clear rising trend and there are three distinct moves. The first was an advance above 2100. The second was a decline below 1900. The third is an advance above 2300. The third move is still underway and the black trendline extending up from the March low is holding. The index has consolidated the last few weeks and a move above the magenta trendline would keep the bull going. A move below the blue trendline and October low would forge a significant reversal.

By Arthur B. Hill - Fri 10-Feb-06 at 06:17AM in Indices
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The Dow Diamonds (DIA) Consolidates Within Uptrend

The Dow Diamonds (DIA) may not bee moving higher at the speed of light, but it is moving higher. The blue trendlines shows a rising wedge type formation and a relatively slow advance. Notice how flat the trendlines are. The stock is current trading just below the upper trendline and near resistance. A consolidation formed over the last few weeks and this holds the key for DIA. A move below the January low is bearish and a move above the January high bullish. Even with a support break, DIA would still be above the lower wedge trendline and it would take a move below the October low to seriously unleash the bears.

By Arthur B. Hill - Fri 10-Feb-06 at 06:17AM in Indices
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Thursday - February 09, 2006

The Dow Forms Another Diamond

Egads, it is another one of those diamonds. Just what is the diamond formation? First, it is a consolidation. The Dow is clearly caught in a trading range between 10650 and 11500. Sideways price action represents a consolidation. Second, the pattern is neutral until there is a breakout. The first half of the pattern shows an expanding range and the second half shows a contracting range (symmetrical triangle). The contracting range shows that the battle between bulls and bears is growing more intense. The first possible signal is a break above or below the triangle trendlines. The second signal is a move above the recent high or low. The third signal is a complete breakout from the whole range. The first levels to watch are 10950 up and 10700 down.

By Arthur B. Hill - Thu 09-Feb-06 at 07:22AM in Indices
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The Nasdaq Establishes Range Support

While the Dow touched its January low, the Nasdaq held well above its January low and formed a flat consolidation over the last few weeks. The ability to hold above the January low shows relative strength and this is positive. The index suffered sharp declines on 20-Jan (long black candlestick) and again last week (gap). Both found support around 2240 and the bulls must hold this level. To get the advance moving again, the Nasdaq needs to fill last week’s gap and break consolidation resistance at 2315.

By Arthur B. Hill - Thu 09-Feb-06 at 07:21AM in Indices
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Wednesday - February 08, 2006

The S&P 100 Tests Neckline Support

The S&P 100 is testing neckline support of a head-and-shoulders reversal pattern. A break below 568 would exceed yesterday’s low and break neckline support. For now, it is holding and the trend remains up. Sure, the lower high at the end of January (right shoulder) is negative, but the pattern from late November to early February is just one big consolidation after the Oct-Nov advance.

By Arthur B. Hill - Wed 08-Feb-06 at 09:41AM in Indices
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Tuesday - February 07, 2006

The S&P Large-Cap Value ETF (IVE) Consolidates

The S&P Large-Cap Value ETF (IVE) formed two doji over the last two days and has a potential pennant working over the last few weeks. The doji signal indecision and potential support. In addition, there is support around 65.7 from the prior low. The doji formed just above this low, but we have yet to see a bounce that would validate a higher low. A bounce from here would put the pennant into play and a break above 67.5 would keep the medium-term uptrend alive. Failure to hold 66 would be negative and lead to an even more important test of the January low.

By Arthur B. Hill - Tue 07-Feb-06 at 08:34AM in Indices
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The S&P Small-Cap Value ETF (IJS) Gets Overbought

The S&P Small-Cap Value ETF (IJS) does not have the pennant problem that faces the S&P Large-Cap Value ETF (IVE). Whereas the S&P Large-Cap Value ETF failed to exceed its early January, the S&P Small-Cap Value ETF moved to new highs at the end of the month. The trend is clearly up, but you can see that the stock is now trading near the upper trendline of a rising price channel. This means it is overbought and ripe for either a consolidation or a correction. Broken resistance around 65-66.5 turns into support and this is the level to watch on any pullback.

By Arthur B. Hill - Tue 07-Feb-06 at 08:33AM in Indices
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Monday - February 06, 2006

The Dow is Losing Momentum

The Dow is clearly having trouble with 11000 and MACD sports a big negative divergence over the last few months. A move below 10650 would be most bearish.

By Arthur B. Hill - Mon 06-Feb-06 at 07:46AM in Indices
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The Russell 2000 Still Outperforming

The Russell 2000 ($RUT) and small-caps do not seem to have the same problems though. RUT moved well above its early January high and MACD does not have a negative divergence working. The more things change the more they stay the same. Small-caps have been outperforming large-caps for years and there is no sign that this is about to change.

By Arthur B. Hill - Mon 06-Feb-06 at 07:46AM in Indices
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The S&P 100 Forms Another Head-and-Shoulders Reversal

In fact, one can even make the case for a bearish head-and-shoulders pattern on the S&P 100. The left shoulder formed in December, the head in early January and the right shoulder over the last two weeks. Neckline support is at 569 and a move below this level would be bearish.

The index also formed a head-and-shoulders pattern from June to September and broke neckline support in October. This breakdown did not last, but I would not ignore a break below 569 now.

By Arthur B. Hill - Mon 06-Feb-06 at 07:45AM in Indices
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QQQQ Gaps Below Trendline Support

QQQQ is also feeling the heat with a gap below the late January low and October trendline. In addition, RSI has a large negative divergence working and moved below 50. Only a break back above 42.5 for QQQQ and 55 for RSI would reverse the current technical damage.

By Arthur B. Hill - Mon 06-Feb-06 at 07:44AM in Indices
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Friday - February 03, 2006

Dow Industrials Fails at 11000 Again

The Dow is meeting staunch resistance around 11000, a level that turned the Average back in December and January. February is getting off to the same start with a big black candlestick on Thursday and 11500 remains the level to beat. Notice that MACD has a large negative divergence working and is poised to dip into negative territory for the second time this year. Things are looking bleak for the Dow.

By Arthur B. Hill - Fri 03-Feb-06 at 06:28AM in Indices
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Negative Divergence May Haunt Dow Transports

We also have a non-confirmation with the Dow Transports in January. The Dow Transports moved to a new reaction high in late January, but the Dow Industrials failed to exceed its early January high and formed a lower high. Despite strength in BA and UTX, the Dow Industrials is not as strong as the Dow Transports. This is a Dow Theory non-confirmation and a move below the January lows (both Averages) would provide a Dow Theory sell signal. Also notice the RSI formed a large negative divergence over the last few months and upside momentum is waning for the Dow Transports.

By Arthur B. Hill - Fri 03-Feb-06 at 06:27AM in Indices
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Dow Utilities Running Out of Gas

The Dow Utilities was doing quite well until the end of January. The Average moved to a new reaction high on 25-Jan and then fell apart over the last seven days. The Average broke below the lower channel trendline and is poised to test key support at 402. A move below this level would be bearish for the group. MACD formed a slightly lower high in late January and is poised to move into negative territory, which would turn momentum bearish.

By Arthur B. Hill - Fri 03-Feb-06 at 06:25AM in Indices
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Friday - October 14, 2005

SPX from the TD Trader Daily Swing

On the daily chart, the triangle support break and move below 1200 rule the roost. The index has become oversold and shows signs of firmness with a doji yesterday. This could lead to an oversold bounce back to broken support around 1200-1210.

The 60 minute chart echoes the sentiments of the daily chart. The index declined over 60 points without a bounce and is ripe for a retracement or a consolidation. For potential upside targets, I am looking at broken support the normal retracements (38%, 50% and 62%). A 50% retracement of the October decline would extend to around 1203. In addition, there is support between 1200 and 1210 from the September lows. Together, these make for a resistance zone around 1200-1210 and I would expect a rally to fail in this area.

In the TD Trader Daily Swing commentary (click here), I have been short-term bearish since 5-Oct (1209 SPX)

By Arthur B. Hill - Fri 14-Oct-05 at 04:37AM in Indices
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NDX from the TD Trader Daily Swing

Led by a rebound in the Semiconductor HOLDRS (SMH), the Nasdaq 100 formed a bullish engulfing just above 1500. This bullish candlestick reversal requires confirmation and a close above 1550 would do the trick. A bullish engulfing marked the 29-Aug low (gray oval) and this was confirmed two days later with long white candlestick.

For what an unconfirmed bullish engulfing looks like, see the 22-Sep bullish engulfing in the Retail HOLDRS (RTH). A long white candlestick failed to follow and this pattern is still unconfirmed. There were attempts to rally, but RTH failed to close strong and above resistance at 94 in late September. Two hammers formed recently and 94 still holds the key.

On the 60 minute chart, the decline slowed around 1520 and the index bounced with an afternoon rally. After a 100 point decline without a bounce, the index is ripe for a retracement or a move back to broken support. A 50% retracement would extend to around 1570 and I see a broken support zone around 1550-1565. Together, these form a resistance zone around 1550-1570 and I would expect a rally to fail in this area.

In the TD Trader Daily Swing commentary (click here), I have been short-term bearish since 5-Oct (1589 NDX)

By Arthur B. Hill - Fri 14-Oct-05 at 04:36AM in Indices
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Thursday - October 06, 2005

Support Breaks Abound

Stocks closed near their lows for the second day running as selling pressure remained intense. Finance led the way lower and the Dow Diamonds (DIA) broke support at 103.5 with a long black candlestick. This looks like a convincing support break.

By Arthur B. Hill - Thu 06-Oct-05 at 07:02AM in Indices
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OEX Breaks HS Support

The S&P 100 formed a head-and-shoulders pattern from June to September and broke neckline support at 557.

By Arthur B. Hill - Thu 06-Oct-05 at 07:01AM in Indices
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Wednesday - October 05, 2005

Bearish Engulfing Patterns Abound

There were lots of bearish engulfing patterns and failures at resistance yesterday. Case in point: MDY formed a bearish engulfing at triple top resistance. A move below 127 confirms the triple top and reverses the uptrend.

By Arthur B. Hill - Wed 05-Oct-05 at 06:09AM in Indices
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Earnings Season Approaches

The market is also concerned about upcoming third quarter earnings. And rightfully so. Expectations are pretty good as many indices are trading near their highs for the year.

By Arthur B. Hill - Wed 05-Oct-05 at 06:07AM in Indices
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Wednesday - September 28, 2005

Firm On Bad News

Stocks are supposed to decline with bad news and advance with good news. At least that seems logical. When stocks act as they should, there is little reason to question our underlying assumptions. However, when stocks don’t act the way they should, we should question these assumptions.

Consumer Confidence came in worse than expected and stocks declined in early trading. This was the initial reaction. A weak market would have continued lower and failed to rebound. However, SPY stabilized around 121 and rebounded in the afternoon. In fact, this rebound carried the stock above its morning high and yesterday’ price action was positive.

By Arthur B. Hill - Wed 28-Sep-05 at 10:32AM in Indices
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Monday - September 26, 2005

NY Composite Still Strong

Despite selling pressure over the last few weeks, the NYSE Composite remains above the May trendline and August low. The index has lots of support around 7350 from broken resistance and I would not turn bearish on this broad non-tech index until a break below 7350. Watch the May trendline (7450) for early signs of weakness.

By Arthur B. Hill - Mon 26-Sep-05 at 06:54AM in Indices
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Friday - September 23, 2005

Dow Triangle

Dow Industrials: The Dow has gone nowhere since November 2004. In fact, this period of flat trading could even extend to January 2004 when the Dow moved above 10500. For almost two years, the Dow has simply treaded water. This period of flatness could be coming to an end. But which way will the Dow break?

The Average formed a large triangle over the last 12 months and the trendlines are slowing converging. Within the triangle, the Dow broke support at 10350 with a sharp decline in April and the advance over the last few months looks like a rising price channel. The support break is bearish and the rising price channel is typical for a corrective rally. The only thing missing is confirmation with a trendline break and lower low. The Dow tested trendline support this week and a move below the late August low (10350) would signal a continuation lower and project further weakness towards the October low around 9700.

By Arthur B. Hill - Fri 23-Sep-05 at 03:52PM in Indices
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Thursday - September 22, 2005

MDY Tests Support

The S&P Midcap ETF (MDY) failed at its early August high, broke the April trendline and declined to support from the late August low. This support level (127) is confirmed by broken resistance (June high) and a break would confirm the double top. This would open the door to 122 and be bearish for housing stocks.

By Arthur B. Hill - Thu 22-Sep-05 at 11:05AM in Indices
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Nowhere to Hide

Even the small-caps value stocks came under intense selling pressure. The Russell 1000 Value ETF (IWD) gapped and surged above 69.5 last week, but failed to hold the gains and formed a bearish engulfing this week. In fact, a harami first formed and then a long black candlestick engulfed the entire harami. The gap below 69 and black candlestick confirm these bearish engulfing pattern and the next support level is around 67.5.

By Arthur B. Hill - Thu 22-Sep-05 at 11:00AM in Indices
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Wednesday - September 21, 2005

Broadening Formation

The S&P 500 has formed a broadening formation over the last few months. These are big bad bearish reversal patterns. The higher highs in 2005 show good buying pressure, but the lower lows reflect uncertainty and volatility. The index formed a lower low in April and a higher high in early August. Should the index break support at 1200, I would expect a move towards the lower trendline. This trendline extends below 1100 in October.

By Arthur B. Hill - Wed 21-Sep-05 at 12:22PM in Indices
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SML Will Move Faster

The S&P 500 is not alone with its broadening formation. The S&P SmallCap Index (SML) also formed a broadening formation over the last few months. This index is made up of high beta small cap stocks. These usually outperform on the way up and underperform on the way down. Should the S&P 500 break support and start a broad market decline, I would expect these small caps to decline faster and deeper.

By Arthur B. Hill - Wed 21-Sep-05 at 12:21PM in Indices
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Tuesday - September 20, 2005

SPY Harami Cross

A harami started the rally in late August and a harami cross may have ended the rally. This is a bearish candlestick reversal that requires confirmation. The decline over the last few days provides confirmation and it would take a move above 124 to turn short-term bullish again.

By Arthur B. Hill - Tue 20-Sep-05 at 05:53AM in Indices
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DIA Triangle Tightens

DIA is caught in a triangle and the noose is tightening. The direction of the break will have ramifications for the rest of the year and perhaps longer. A move above 107.5 would be bullish and a move below 103.5 bearish.

By Arthur B. Hill - Tue 20-Sep-05 at 05:53AM in Indices
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Friday - September 16, 2005

NDX Correction or More?

There are three possibilities when we look at a price chart. We see what we WANT we see. We see what we THINK we sell. We see what is ACTUALLY there. That insight comes from David Fuller of fullermoney.com. Just what is actually there on the NDX chart? The index retraced 50% of the prior advance with a falling flag and broke resistance with a surge above 1575. The doji on Tuesday and decline over the last two days are negative, but not enough to reverse this breakout, which would take a move above 1570. For now, the April trendline and broken resistance (~1570) are holding. Even though Tuesday’s doji and Wednesday’s long black candlestick are certainly disconcerting and maybe even short-term bearish, it would take a move below 1570 to do real damage on the daily chart.

By Arthur B. Hill - Fri 16-Sep-05 at 02:31PM in Indices
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Monday - September 12, 2005

Transports Lag Industrials

Dow Theory stipulates that the Dow Industrials and Dow Transports should confirm each other to validate weakness or strength. Most recently, both Averages recorded new reaction highs in late July (green arrows) and this provided a Dow Theory confirmation of strength. Both Averages corrected in August, but only one surged in September.

The Dow Transports formed a falling flag correction in August. The only problem, for the bulls at least, was the inability of the Average to break the fall, exceed resistance at 3706 and signal a continuation higher. The flag just kept on falling and the Average gapped down on Friday.

In contrast to the Dow Transports, the Dow Industrials firmed around 10400 with a couple of bullish candlestick reversal patterns and surged above 10600 with a big move over the last four days. Wednesday’s long white candlestick is enough to confirm the prior bullish engulfing (30-31 Aug) and turn the Dow Industrials short-term bullish.

The Dow Industrials surged and the Dow Transports sank – something is wrong with this picture. This amounts to a non-confirmation of strength in the Dow Industrials. The Dow Transports need to break resistance at 3706 to get the Dow Theory bull back on track. Without confirmation from this economically sensitive group, the breakout in the Dow Industrials is prone to failure.

By Arthur B. Hill - Mon 12-Sep-05 at 06:53AM in Indices
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Friday - September 02, 2005

Waiting for a Catalyst

The pieces are in place for a short-term bullish reversal and continuation of the advance that began in April. The Nasdaq 100 formed a falling flag that retraced 50% of the prior advance. In addition, the index found support from broken resistance and the April trendline.

1550 has been the downside target for the flag and we are now getting signs of buying pressure. The index broke the upper flag trendline and closed above the bullish engulfing high (Fri/Mon). This is the early bull signal and should be treated as such until proven otherwise.

Despite a break above the upper flag trendline, the current catalyst does not measure up to the early July breakout. Notice that the June/July setup is virtually identical: falling flag, 50% retracement, one month decline. The June correction ended with a bullish engulfing (1-Jul/5-Jul) and a two day surge above 1515 resistance (green oval). For the current catalyst to measure up, we need to see a big break above 1590 – preferably 1600. This would solidify the reversal and call for a continuation of the July advance. Wait for the break!

By Arthur B. Hill - Fri 02-Sep-05 at 03:14PM in Indices
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Thursday - September 01, 2005

Middies Lead

On 31-Aug, I wrote that we should bank on the mid-caps. Sure enough, the market turned around on Thursday and the S&P Midcap ETF (MDY) led the way higher with good volume.

The stock formed a falling flag/wedge in August, firmed just above the April trendline and broke above 130 on Thursday. This signals a continuation higher and reinforces support around 127.

By Arthur B. Hill - Thu 01-Sep-05 at 06:11AM in Indices
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Tuesday - August 30, 2005

A Reversal Day?

With a weak open and strong close, there were a lot of bullish candlestick reversal patterns on Monday. Namely, the Dow Diamonds (DIA) formed a bullish engulfing pattern around 104. This could be the third reversal in four months, but we need to see follow through.

Notice that prior reversals in May and July were confirmed with a strong move the very next day. This showed bullish resolve and this is the kind of follow through required to reverse the short-term downtrend. For DIA, I will be looking for a move above 105.6. One more point. Notice that DIA opened weak and closed strong for confirmation in May. Should the stock open weak today, look for a move above yesterday’s high (104.81) for the early signal.

By Arthur B. Hill - Tue 30-Aug-05 at 08:46AM in Indices
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Bank on Middies

If the market does confirm Monday’s reversal day with strong follow through, I would expect the old guard to lead the way higher. By that, I mean the stocks that have been leading this market for the last four years: the S&P MidCap Index (MID) and S&P SmallCap Index (SML).

MDY formed a falling flag over the last four weeks and is nearing support from the April trendline. The stock formed a piercing pattern yesterday and this bullish candlestick reversal would be confirmed with further strength above 130. This would also confirm the falling flag and project a move above the early August high. As long as 130 holds, I would expect the stock to work its way towards support around 125.

By Arthur B. Hill - Tue 30-Aug-05 at 08:45AM in Indices
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Monday - August 29, 2005

Nasdaq Support

The August trend is clearly down, but where can we expect support for the Nasdaq? First, the index recorded a new high for 2005 in early August and the current decline is viewed as a correction, provided it does not overstay is welcome. The April-July advance was quite sharp and some sort of pullback can be expected.

For support, I would look at key retracements, prior consolidations, moving averages and trendlines. A 38-50% retracement of the Apr-Jul advance would extend to the 2050-2100 area. This is a normal retracement after an advance. The rising 200-day SMA confirms this support zone, as does the June consolidation (gray oval). Therefore, I am establishing a support zone around 2050-2100 for the Nasdaq and will expect a bounce or consolidation in this area. A break below the support zone would be deemed excessive for a normal correction and this would turn the trend bearish.

By Arthur B. Hill - Mon 29-Aug-05 at 07:25AM in Indices
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Broad Market Support

The S&P 500 Equal Weight Index (RSP) is as good a representation of the broader market as any. It treats all S&P 500 stocks equally, regardless of market capitalization. Therefore General Electric ($3.35 billion) counts the same as Perkin Elmer ($2.53 billion).

I use this index to tell me where the broad market is heading. RSP recorded a new all time high in early August and remains in a long-term uptrend. The current decline looks like a falling flag, but is still falling and support is a couple points away. As with the Nasdaq, I am looking at key retracements, prior consolidations, trendlines and moving averages. This puts a support zone around 155-159 and I would expect the index to firm in this area. A move below the bottom of the support zone (say 154) would be deemed excessive and reverse the current uptrend.

By Arthur B. Hill - Mon 29-Aug-05 at 07:25AM in Indices
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Thursday - August 25, 2005

Large Lead Lower

The S&P 100 underperformed on the way up and looks set to lead on the way down. The index formed a bearish rising wedge and broke lower trendline support with a sharp decline over the last two days. There was a consolidation at trendline support (gray oval), but this has been resolved to the downside.

The consolidation highs now become resistance and the level (572) for the bulls to beat. The index is getting short-term oversold and nearing support around 560. This may lead to a consolidation or even a bounce, but this is not enough reason to turn bullish.

By Arthur B. Hill - Thu 25-Aug-05 at 09:52AM in Indices
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Tuesday - August 23, 2005

More Indecision in DIA

Big spinning top candlesticks formed yesterday in a number of indices, stocks and ETFs. These have small bodies (open/close) with long upper/lower shadows that represent the intraday high and low. The bulls controlled early price action, but the bears wrestled control away and forced prices lower. However, the bulls managed one last gasp to force prices back to the middle and the result is little change from the open. What a battle for support.

The 4-5 week pattern in the Dow Diamonds (DIA) is looking like a diamond. Most books write about these as bearish reversals, but I view them as a neutral consolidation. The last four candlesticks featured failed rally attempts and a move above 106.5 would break resistance, provided it holds of course. Conversely, a move below 105 would be bearish.

By Arthur B. Hill - Tue 23-Aug-05 at 07:16AM in Indices
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Tuesday - August 16, 2005

Deja vu for Russell 2000

The Russell 2000 iShares (IWM) have a setup similar to January working. In January, the stock broke trendline support and then consolidated in the low 60s. Instead of breaking support at 60 and continuing lower, IWM broke resistance at the end of January and labored higher into early March (black caret). The rally failed here and the stock moved to new lows. Most recently, the stock broke the trendline extending up from May and consolidated between 65 and 66.5. A move above 66.5 gets the bulls going, but a break below 65 argues for a continuation of the early August decline.

By Arthur B. Hill - Tue 16-Aug-05 at 07:40AM in Indices
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Diamonds Consolidation

Just like the late May/early June period, the Dow Diamonds (DIA) remains range bound with support at 105.5 and resistance at 107.2. Trading within the range is a mess and the stock needs to break free for the next directional signal.

By Arthur B. Hill - Tue 16-Aug-05 at 07:39AM in Indices
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Micap Flag

The S&P MidCap Index (MID) broke a sharp trendline extending up from mid May and consolidated the last five days. The consolidation has a slight rise and looks like a rising flag. These are short-term bearish consolidations that require confirmation. A move below the lower trendline and Friday’s low would signal a continuation lower and target a decline to the next support zone around 680.

By Arthur B. Hill - Tue 16-Aug-05 at 07:38AM in Indices
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Thursday - August 11, 2005

Large and Lethargic

The S&P 100 ETF (OEF) surged for 5-6 days in early July and then consolidated for the next four weeks (magenta trendlines). What a bad encore to such a strong advance. A three bearish candlestick reversal patterns formed within this consolidation, but the stock recovered from the support break at 57. The red ovals show a harami and two bearish engulfing patterns. A move below this week’s low would confirm the last bearish engulfing and argue for lower prices.

By Arthur B. Hill - Thu 11-Aug-05 at 08:43AM in Indices
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Dow Slugfest

When it comes to candlestick analysis, I prefer to use the ETF instead of the underlying indices. The prices of ETFs, especially the open, are based on actual trades. In contrast, the open for the Dow Industrials and other indices is based on which stocks were open at the start of trading. Some stocks may open later and this is not reflected in the opening price . The open is very important to candlestick formation and it is important to have a robust opening price that is based on an actual trade.

DIA opened strong on Wednesday, surged above 107, dipped below 106 and then closed at 106.24. What a roller coaster. The resulting candlestick is a spinning top and this signifies indecision. The bulls and bears were slugging it out all day, but neither could grab the upper hand and the result is a standoff. Overall, the stock remains in a trading range with support at 105.5 and resistance at 107.2. These are the level prior to the wild price action of the last three days and I think we should watch these levels for the next significant move: above 107.2 bullish and below 105.5 bearish.

Spread the word by using the “email to friend” link below. Thanks.

By Arthur B. Hill - Thu 11-Aug-05 at 08:43AM in Indices
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Tuesday - August 09, 2005

The Three Little Gaps

The S&P 500 Equal Weight Index (RSP) provides a good lesson in gaps. Gap 1 is a breakout away gap that started the big advance off the May low. It was never filled as the stock moved higher immediately. Gap 2 in early July was a common or continuation gap that signaled a continuation of the current uptrend. It also was never filled as the ETF moved higher immediately. Even though it is only two days old, gap 3 could be an exhaustion gap. The ETF recorded a new all time high last week and then gapped down. The gap is thus far unfilled and should be considered short-term bearish as long as it remains unfilled. A move back above the gap zone (163.5) would put the bulls back charge.

By Arthur B. Hill - Tue 09-Aug-05 at 09:16AM in Indices
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Monday - August 08, 2005

MidCap Correction

Homebuilders led the S&P MidCap Index (MID) lower on Thursday and Friday. This index recorded a new all time high last week, but became overbought and ripe for a pullback. The trendline break starts the correction and I would look for a move back to 670-685. Broken resistance, a 50% retracement of the prior advance and June lows all converge to mark support in this area.

By Arthur B. Hill - Mon 08-Aug-05 at 08:23AM in Indices
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Dow Flag

I pointed out the flag consolidation last week and the Dow broke flag support with a long black candlestick on Friday. The inability to continue higher is negative and the support break is short-term bearish with an initial downside target around 10350-10400.

By Arthur B. Hill - Mon 08-Aug-05 at 08:23AM in Indices
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Thursday - August 04, 2005

Dow Deja Vu

The current pattern in the Dow looks similar to that seen from mid May to early June. The Average surged in mid May and then consolidated. After a failed breakout at 10600, the Dow fell back quite hard with a decline to 10300.

Currently, the Dow surged in early July and consolidated the last three weeks. There was a brief break above 10700, but this failed to hold and the consolidation persists. A move below the consolidation lows would be short-term bearish (as it was in late June). A move above last week’s high would keep the bull alive.

The Stochastic Oscillator is overbought and staying overbought (>80). This also happened from mid May to mid June when the indicator remained overbought 22 of 23 days. The Stochastic Oscillator is overbought AND bullish as long as it remains above 80. A move back below 80 would be negative and could be used to confirm a support break at 10570.

By Arthur B. Hill - Thu 04-Aug-05 at 09:01AM in Indices
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Russell Divergence

The Russell 2000 ($RUT) and small-caps have been the top performers over the last few months. What else is new? While the Dow remains below its March high and the Nasdaq is trading near its 2005 high, the Russell 2000 recorded an ALL TIME high this week. The trend is clearly up, but the index is overbought and ripe for a pullback.

RSI confirms the overbought condition and a recent trendline break argues for further weakness. Even though RSI is an oscillator, it does trend and I use trendlines to identify these trends. The red trendline shows the downtrend from December to April and the green trendline shows the uptrend from April to July. The indicator just broke below the green trendline. This is the early bear signal and further weakness below 50 would confirm. Also notice that a small negative divergence formed in Jul-Aug (blue line).

Weakness from current levels would be viewed as a correction. With a new all time high this week, the long-term trend is up by definition. This means that declines will be viewed as corrections. The December and February highs established a resistance zone (638-658) and this area becomes support. After a breakout, it is common for a return to the breakout and I would expect support in this area.

By Arthur B. Hill - Thu 04-Aug-05 at 09:01AM in Indices
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Monday - August 01, 2005

OEX Breakout

Even though the S&P 100 is underperforming the S&P SmallCap Index (SML), it remains in an uptrend and the recent breakout points to higher prices.

The overall pattern looks like a rising wedge, which is a bearish consolidation. However, this pattern requires confirmation with at least a break below the lower trendline. As long as the lower trendline holds, the wedge is rising and the bulls have the upper hand.

After moving to the upper trendline, the index formed a flat flag over the last two weeks. The break above the 577 signals a continuation of the early July advance and upside target is around 590. Watch flag support at 570 for a failure and short-term trend reversal.

By Arthur B. Hill - Mon 01-Aug-05 at 07:24AM in Indices
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DIA Holds Gap

Even though the Dow Diamonds (DIA) stalled over the last two weeks, the 14-Jul gap held and the stock closed at its highest level of the month on Friday. As long as the gap holds, it should be considered a continuation gap and bullish. A move below key support at 105.5 will fill the gap and turn the short-term situation bearish. Right now the gap is holding and the outlook is bullish until proven otherwise.

By Arthur B. Hill - Mon 01-Aug-05 at 07:24AM in Indices
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Monday - July 25, 2005

Small Is Beautiful

Once again, small caps are taking the lead as the Russell 2000 ($RUT) broke to a new all time high this month. There is a steep rising price channel working and the bulls have little to fear as long as last week’s lows hold (658). A move below 658 would break the rising price channel and argue for a retracement – but not a moment sooner.

By Arthur B. Hill - Mon 25-Jul-05 at 09:25AM in Indices
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Nasdaq and 200-day SMA

Does it make sense to be bearish when the Nasdaq is trading above its RISING 200-day simple moving average? No. The index consolidated around 2050-2100, held the 200-day SMA and broke resistance at 2100 with a bang. The 200-day SMA and consolidation support now mark key support at 2050 and this level holds the key to the current uptrend.

By Arthur B. Hill - Mon 25-Jul-05 at 09:25AM in Indices
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Dow Underperforming

It looks like surge and consolidate again for the Dow. Notice that the average also surged and consolidated in May. The breakout at 10600 failed to hold, but the average rebounded in July and is trading above its June high.

Despite this rebound, the Dow is underperforming the other major indices. The S&P SmallCap Index (SML), S&P MidCap Index (MID), S&P 500 and Nasdaq are all trading above their March highs, but the Dow has yet to better this high.

For now, the trendline break and higher high are bullish. As such, I would expect the Dow to work its way towards 10800. The consolidation lows hold the key. A move below 10550 would signal a failure and call for a pullback to the lower trendline extending up from mid April.

By Arthur B. Hill - Mon 25-Jul-05 at 09:24AM in Indices
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Thursday - July 07, 2005

Small Caps Continue to Rule

Large-caps continue to underperform small-caps. The S&P 100 held up pretty well from October to April. However, when the rally began in May, it was all small as the S&P SmallCap Index left OEX in the dust (blue line). OEX broke rising wedge support and formed a flag over the last seven days. A break below flag support opens the door to the April lows - at least.

By Arthur B. Hill - Thu 07-Jul-05 at 11:29AM in Indices
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DIA Volume

Downside volume has been swamping upside volume in DIA over the last two weeks.

By Arthur B. Hill - Thu 07-Jul-05 at 11:29AM in Indices
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Dow In Trouble

The Dow looks in trouble. The Average retraced 62% of its prior decline with a rising price channel (magenta trendlines). There was a sharp decline in late June and then a consolidation near trendline support. Even though the trendline break is a result of the London events, the groundwork was already laid and the next target is the lower (blue) trendline around 9700 by early August.

By Arthur B. Hill - Thu 07-Jul-05 at 11:28AM in Indices
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Transports Leading Lower

You can also see that the Dow Transports started moving ahead of the Dow Industrials. While the broader market held firm or even moved higher in June, the Dow Transports fell apart and broke trendline support in late June. The Average would have to move above the mid June high to undo the technical damage. The Dow Transports is targeted to around 3100 by early August.

By Arthur B. Hill - Thu 07-Jul-05 at 11:25AM in Indices
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Thursday - June 30, 2005

Energy, Rates and Stocks

By Arthur B. Hill - Thu 30-Jun-05 at 09:17AM in Indices
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Thursday - June 16, 2005

Dow Dulls

Looking at the Dow’s Bollinger Bands, I get the strange feeling that something is about to happen in this DULL trading range. The Bollinger Band width is at its lowest level in over 15 years as the Dow trades within a 170 point range the last 19 days. Such contractions usually precede an increase in volatility and lead to a significant breakout. Bollinger himself notes that there is often a head fake (false breakout) and then a good directional move in the opposite direction of the head fake. I am not smart enough to predict head fakes and will simply take the breaks as they come. A move above 10600 is bullish and opens the door to 11000, while a move below 10400 is bearish and opens the door to a break below 10000. INDU

By Arthur B. Hill - Thu 16-Jun-05 at 04:47PM in Indices
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Monday - June 06, 2005

Notable Charts 050606

Major Indices

The Nasdaq 100 entered a resistance zone around 1550 and RSI is moving lower after becoming overbought.

The S&P 500 retraced a Fibonacci 62% of its prior decline and is meeting resistance around 1200. With both NDX and SPX near resistance, further upside looks limited.

Inter-market

The iShares ~20-year T-Bond Fund (TLT) formed a big bad bearish engulfing on Friday. This massive reversal could herald a consolidation or even a sharp trend change.

The US Dollar Index moved to the top of a rising price channel and has started to stall around 88. A move back to broken resistance around 85.5 is likely.

It is a classic for the CRB as the index retraced 62% with a falling price channel and broke above the upper trendline this last week.

The Gold ETF formed an island reversal last week and this is firmly bullish (short-term) as long as the gap holds.

Oil formed a falling wedge, broke the upper trendline and exceeded the prior high to turn bullish again. This is likely to benefit Energy stocks.

Sectors

The Consumer Discretionary SPDR (XLY) formed a rising flag and met resistance from broken support. A move below 32 would signal a continuation lower.

The Consumer Staples SPDR (XLP) formed a falling flag the last three weeks and a move above 23.6 would be bullish. Conversely, a move below the lower blue trendline would be negative.

The Energy SPDR (XLE) is following oil with a break above falling price channel resistance. Notice that prior to the breakout the stock retraced 62% of the prior advance and returned to broken resistance, which turned into support.

After a harami (Wed/Thu) last week, the Finance SPDR (XLF) weakened on Friday. The rising wedge is potentially bearish and traders should watch support at 29.

By Arthur B. Hill - Mon 06-Jun-05 at 06:56AM in Indices
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Friday - June 03, 2005

S&P Equal Weight

As its name implies, the Rydex Equal Weight S&P 500 Index (RSP) treats all component equal, regardless of market capitalization. This means that ExxonMobile (XOM). with market cap of $369 billion, counts the same as Teco Energy TE), which has a market cap of just $3.64 billion. This makes the index a good representation of the average Joe (Joe Stock that is).

RSP remains in a long-term uptrend and has yet to break down. The going is getting tougher, but momentum is still up overall on the weekly chart. First, the index broke resistance at 145 with a surge in Nov-04. This resistance level hounded the index most of 2004. Second, resistance turned into support with a successful test in Apr-05. Third, the trendline extending up from Aug-03 also confirmed this support level and the index remains near its all time highs.

Even thought the index has not made much head way over the past year, there is a clear upward bias on chart. Support at 145 holds the key. As long as this level holds, pundits can expect a trading range at worst and a move towards the upper trendline (170) at best. A move below 145 would turn the big trend down and be bearish for the broader market.

By Arthur B. Hill - Fri 03-Jun-05 at 04:44PM in Indices
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Friday - May 13, 2005

A Weak Catalyst

There was a reversal day on 29-Apr when stocks recovered from early weakness and advanced on good volume. There was also some follow through in early May with SPX moving above 1165. However, the Nasdaq stalled at 1975 and the S&P 500 moved back below its breakout three days later. This was not much of a bullish catalyst and shows that the current bull market is tired.

This chart shows SPY in Mar-03, when the bull was young and raring to go. SPY reversed on 12-Mar, gapped up on 13-Mar and put together a string of eight straight advancing days (gray oval). Also notice that volume was above average all eight days. That is a catalyst raring to go and the early May advance just doesn’t compare. Mar-03 was the kind of catalyst that lifts all boats and leads to a broad market advance. The early May-05 bounce was not convincing and leads to a selective advance that is more typical of the latter stages of a bull run.

By Arthur B. Hill - Fri 13-May-05 at 01:52PM in Indices
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Tuesday - May 10, 2005

Sector Rotations

In addition to low volume and hesitation on the breakouts, recent sector rotations reflect a low appetite for risk. Information Technology is underperforming and showing relative weakness, while HealthCare is outperforming and showing relative strength. This is not a bullish combination. Strength in HealthCare will benefit the S&P 500 somewhat, but weakness in Information Technology will offset this strength.

HealthCare remains the most favored secto