DP Weekly Wrap: Market Still Strong

The bearish rising wedge formation we had been watching resolved upward last week, though not by a decisive margin. This week price reached, then retreated from horizontal resistance, forming a top which created a new rising wedge formation. In spite of the modest pullback early Friday, price was virtually unchanged by the close. Again, let me remind you that the very high SPX volume on Friday was associated with options expiration occurring near the end of the quarter. If there is any message there, it is buried under that avalanche.

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DP Weekly Wrap: Market Approaching Overhead Resistance

Rising wedge formations normally resolve downward, but sometimes they don't. While I was expecting the normal bearish resolution of the current rising wedge, the market wasn't having it, and it pressed higher for a breakout on Wednesday. There has been no follow through yet, but price has managed to hold above the top of the wedge. There are significant lines of resistance just ahead, and OBV is not confirming the new price highs.

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DP Weekly Wrap: A Pullback Is Still Likely

Last week I wrote: ". . . the market seems to be set up for a pullback or correction.  . . .  Recent declines have been very short-lived, so I can't make a case for anything too serious." What we got on the first trading day of this week was a sharp -1.5% intraday pullback, and that was it. We had been watching a flag formation (the ghost of which I left on the chart), but Tuesday's decline and subsequent advance created a higher low in the advance from the May low. The result is a bearish rising wedge, which is now a dominant formation on the chart, and the likely resolution of the pattern is down.

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DP Weekly Wrap: From Flag to Churn

Last week I thought we had a good outlook based upon a bullish flag formation, but this week the market just added more sideways movement. We could still make a case for a flag being in place, but a good flag should slant down off the flagpole as a sign that some compression is building that could launch the next leg up. This sideways churning dampens my enthusiasm. Volume continues to be light compared to the 250EMA of volume, and the daily PMO has topped. My outlook is more cautious.

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DP Weekly Wrap: Bullish Flag Forming

Back in the day, options expiration days were characterized by high volatility and exceptionally high volume; however, in recent years the market stays relatively calm, and the high volume only appears at the end of each quarter. These expectations were not disappointed in today's trading. In fact, the entire week was calm, as price worked sideways into a flag formation. Volume for the last two weeks has been somewhat thin, which implies that market participants are not fully committed to the rally. Nevertheless, from the April low a rising trend has been established (a bottom above a bottom, and a top above a top), and the picture remains positive.

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DP Weekly Wrap: Strong Finish, but Where’s the Love?

On Thursday the market recovered nicely from an early selloff, and today it had a strong finish. But in the market, volume equals love, and the short volume on Friday was barely a peck on the cheek. On my SPY chart I like to show, in addition to SPY volume, volume for the S&P 500, and the benchmark is the 250EMA of volume. In this case both gave a resounding "meh." Despite some interim excitement, the market was virtually unchanged for the week.

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DP Weekly Wrap: Choppy Week Closes Down

On the SPY chart last week I thought I saw a reverse flag formation, although it was not as tightly defined as I would like. This week the market thrashed around pretty badly, and although the flag didn't become more visible, there is still a ragged cluster of price bars that, in my opinion, serves the same purpose. A case can still be made for a double bottom, but I think the ragged cluster is a continuation pattern calling for lower prices.

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DP Weekly/Monthly Wrap: Is That a Reverse Flag?

Last week the market broke down from a rising wedge pattern and dove into a scary decline. This week was choppy and wild, but price stayed within a somewhat ragged range that looks to me like a bearish reverse flag formation. Price remained above the 200EMA, and every day volume was a bit above the one-year average of volume. Has there been a successful retest, or is there more trouble ahead?

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DP Weekly Wrap: Sixteen-Month BUY Signal Ends

This week the rising wedge we had identified resolved downward, as expected. Once that happened, we needed to provide a context that could help determine an initial downside target, so we focused on the double top confirmation line, drawn across the low between the tops. That line was violated on Friday, and now the minimum downside target is the support line drawn across the February low. Actually, the double top downside projection is slightly below that line, but I chose to go for the obvious. The IT Trend Model BUY signal, one of the longest lasting that I can remember, switched to NEUTRAL on Friday when the 20EMA crossed down through the 50EMA. (A NEUTRAL signal is a 'soft' SELL signal because the position is cash or fully hedged, not short.)

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DP Weekly Wrap: Bearish Rising Wedge Appears

First, the super high S&P 500 volume today was because of options expiration, so don't read anything else into it.

Last Friday's encouraging breakout is looking like a short-term bull trap , as the market pulled back to the declining tops line support this week. Drawing a line across the two recent tops forms the top of a bearish rising wedge formation, bearish because rising wedges normally resolve downward. The reason for this tendency is that the rising trend line at the bottom of the wedge is usually too steep to be sustained, and a breakdown (correction) is needed, at the very least, to set a less accelerated trend angle. < p class"entry-more-link">Continue reading "DP Weekly Wrap: Bearish Rising Wedge Appears" »

DP Weekly Wrap: Double Bottoms Abound

Friday was an exceptionally positive day, as prices advanced on good news regarding North Korea and jobs. Here are charts of the S&P 500 (SPY) and the 10 major sectors. The recurring theme we see is the double bottom. One exception is Utilities (XLU), which hasn't quite made the turn off the second bottom, and Technology (XLK), which actually formed a more aggressive "V" bottom. In addition, XLK has advanced to new, all-time highs this week. All the PMOs have bottomed, and most are above their signal lines. In general it looks as if we have witnessed a successful retest of the February lows. It is still possible for the market to veer into a ditch, but I think it is time for me to give up my bearish expectations.

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DP Weekly Wrap: Breakout Fakeout and Broken Wedge

At last Friday's close we were faced with SPY pushing at the top of a bullish flag formation (not annotated). On Monday there was a strong breakout that proved to be a fakeout. On Tuesday price topped and fell back to the top of the flag, and at this point a new formation, a bearish rising wedge, emerged. It is bearish because the rising trend lines on rising wedges are usually too steep to maintain, and the wedge usually resolves downward. The breakdown took place on Wednesday, and the decline continued into Thursday. Friday's intraday reversal hints at a continued bounce next week.

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DP Weekly Wrap: Bear Market Rally Over?

Last Friday the market executed a bullish intraday reversal, and this week it rallied five days straight; however, there were some problems. S&P 500 volume contracted into the rally, and Friday's candlestick was a bearish shooting star. I don't really use candlesticks much, but the shooting star is a fairly reliable sign of a short-term top. Another troublesome issue is the OBV reverse divergence. In this case, price is lower than the January high, while OBV is higher than its January top. A lot of up volume is being expended without a commensurate move in price. Not good.

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DP Weekly Wrap: Think Bear Market

Last week I asserted that the character of the market had changed from super bullish to normal bullish, by which I meant that we should start to see more normal bull market corrections. On Monday I quickly revised that opinion and told Erin that I thought we may have entered a bear market. It is, of course, too early to have long-term technical confirmation of a bear market, but it is not too early to anticipate that bearish outcomes will be a lot more likely than we have seen in the prior two years. The last two weeks have provided plenty of evidence in this regard.

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DP Weekly Wrap: Inadequate Correction

Because the DP Weekly Wrap is a recap of the week just ended, I normally lead with a daily chart; however, since there is so much agony being expressed about this week's correction, I am leading with a monthly chart to try to put things in proper perspective. Note that in 2015 price departed from the secular bull market rising trend line by +27%. To correct that excess the market moved sideways into the 2016 low, and then the cyclical bull market began. By the end of last month price had departed from the secular bull market trend line by +40%, which is certainly a good definition of excess. A significant amount of correction will be needed to set that right.

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DP Weekly Wrap: Market Pumps; Dollar Dumps

This week the market underwent a horrifying intraday reversal. Just kidding. There was a surprising reversal on Wednesday, but by the close SPY was virtually unchanged. We can see on the chart that at the intraday low the steep January rising trend line was barely tested. And in the context of January's advance it is as if nothing dramatic happened at all. Which, I guess, it didn't.

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DP Weekly Wrap: Almost A Top

Friday was the last trading day before options expiration, so higher than normal volume should be attributed to that, not to other interpretations of volume versus price movement. We began the trading week with another breakout to new, all-time highs, but that turned into an intraday reversal. But not to worry, the decline only brought price back to the January rising trend line, which held for the rest of the week. In the process, price was squeezed into a short-term rising wedge. Typically, these formations resolve downward, but, let me guess, this wedge will probably resolve to the upside. It's still not too late for a price top, but I'm not holding my breath.

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DP Weekly Wrap: Zoom!

Positive events resulting from the recent tax cut legislation continued to lift the market this week, bonuses and pay raises being most prominent in the headlines. I'm sure that there is a substantial element of anticipation as to the positive effects of corporate taxes being cut by 40%, but I think it will take a while before we have an accurate assessment of the bottom line. At any rate, I think we're watching prices being adjusted upward in response to the new reality.

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