Stock Market Technical Analysis Blog
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Following up on Friday's blog where I explained that this week would be the bull's turn to see what they could do with the market, this morning they immediately stepped up to the plate without hesitation and drove the DOW up 208, Nasdaq up 63, S&P 500 up 27, and AAPL up $38. The upper chart above is a repost of Friday night's charts but includes today's trading showing the silver platter setup prepared for the bulls as I discussed in detail Friday.
With such a major move up in one day it is time to look at the triple index market direction cluster shown in the lower charts where we see the minute changes in the red and green EMAs on each of the three. Looking first at the top row chart, the VIX, we can see that from the closeup window to the right of the six-year chart with the opening of today's weekly bar that it is finally showing air space between the red and green lines which if it continues would mean we have a multi-week rally ahead of us for stocks. Realize that it is only showing now as the new weekly bar has opened. The catch is it is not considered a firm indication until the current weekly bar closes on Friday. Between now and then a lot of bearish things could happen such as the after hours Moody's downgrade of France today which will no doubt have the market facing at least some headwinds tomorrow. Nonetheless, the VIX, the most important of the three is giving preliminary indications that a multi-week stock market rally is around the corner. We will look at it again next Monday night after the current weekly bar closes and prints to get confirmation.
In the middle row, the Nasdaq, looking at the small focus window to the right of the six-year chart we see that the red and green EMAs are still merged in the neutral position on it but if the market continues to climb through next week it will be setup nicely for the red to start showing topside of the green.
To get a better look at today's rally we need to also look at the sentiment EMAs on the weekly bars of the SPY which is shown in the center chart on the right side. In it we can see that if they can keep the market moving even slightly upward through next week we will have the buy signal on the SPY for a multi-week hold which would help the larger Nasdaq index to start a topside lift. It's just that right now the big caps in the SPY are doing all the lifting today and the breadth of stocks in the Nasdaq index will have to follow.
Looking at the bottom row chart, the TLT (Bonds Index), we see the over-extension its price bars reached with last week's bar as it started lifting two weeks ahead of the anticipated opposite move in the Nasdaq as they trade inversely. The bonds are simply the place of refuge when the stocks are in a serious fall and thus have become over time the alternate trade for those that flip between stocks and bonds. The situation of the TLT starting a move early ahead of the Nasdaq is a fluke divergence caused by the fear of the looming fiscal cliff in the market. The early birds into the TLT were not actually bonds/stocks flippers believing that the bonds were going to be next to go up and the stocks next to go down. In reality, the early bond move was caused by investors panicking completely out of stock investing and parking their money in bonds with the intention of not pulling it out until they feel like the economic backdrop of the fiscal cliff, tax rates, and imploding euro zone has reached some resolve whenever that might be.
Of the three indexes, a new market direction is determined when we have confirmation on two of the three which obviously will be the top row VIX and center row stocks when we see how this week's bar prints and certainly a confirmation by the end of next week's weekly bar.
All in all, today's rally was a huge first move now that the bulls finally got their turn but two items will be giving investors pause tonight. The first is being the fact that today's SPY volume is actually by far the lowest of the past four days as shown in the bottom right chart. The litmus test to see if the rally is just a short squeeze pop or if it is something that can sprout legs and cause a sustained market move is typically indicated by the volume of the first big move up day. Today's volume should have been on up there with Friday's volume but it wasn't and that is a substantial red flag as far as sustainability of this rally. The second item which may be less of a concern is the after hours Moody's downgrade of France, we will need to see how much euro zone fear this new development brings back to the surface. Also something to remember, Bernanke will be on the tube midday tomorrow with a speech. Nonetheless, a great first day anyway from the setup I called out in Friday's blog.