Tuesday, April 18th 2006
Nightly Update - INDU, SPX, COMPQ, IWM & RYL
Good evening. I wasn't going to cover the indexes this evening. However, the major indexes had the biggest rally in a year and on strong volume. I still believe that the market is on the verge of a major move. The broader market is at a technical inflection point. This means that a big sustainable move is coming in the future. I believe that we are transitioning to a fast moving market. Blatant strength and high volume has reappeared in every sector from gold to chips. The SMH is in a fast pattern. The wave structure says the market move will be fast.
Remember the following: Elliott wave measures speed by telling you whether it is an impulse or a correction. The trend always determines the direction of the move, be it up or down. The pattern will tell you the distance of the move.
Dow Jones Industrial Average (INDU)- Daily Chart
The daily chart of the INDU illustrates that it is in an ascending triangle pattern. As you can see by looking at the chart, the INDU hit a new 52 week high at 11335 in March 2006 on increasing volume. This expanding volume confirmed the direction and validity of the move. The INDU then retraced in an ABC move to the uptrend line and placed it's lows at 11039 on declining volume, which was bullish action.
Today the INDU reversed sharply higher on strong volume. Remember this; there are two ways to interpret volume. The first way to interpret volume is that precedes price action. The second way to interpret volume is that it confirms the direction of the move. However, to a trader all that matters is price. Target still remains higher by year's end if the INDU takes out resistance at 11350. We are climbing the wall of worry, just as bull markets do. Indicators and oscillators are bullish except for the Aroon. Today, the INDU rose 194 points to close the day up 1.76% at 11268.77.
S&P 500 chart (SPX) - Daily chart
The daily chart of the SPX, like the INDU, illustrates that it is in an ascending triangle pattern. As you can see by looking at the chart, the SPX hit a new 52 week high at 1314 in March 2006 on increasing volume. The SPX then retraced to the uptrend line and placed it's lows yesterday at 1280.70 on declining volume. Today, the SPX opened above the trend line and reversed sharply higher on heavy volume. Nevertheless, the Aroon did have a bearish cross. Consequently, the Key price to watch is still 1315, because that is the next resistance level. The SPX has to take that out in order to confirm that it will move higher. The other indicators and oscillators look to bottoming and turning up. Today, the INDU rose 22.32 points to close the day up 1.74% at 1307.65.
The Nasdaq Composite (COMPQ)- Daily Chart
The daily chart of the COMPQ illustrates that it has broken out of an ascending triangle pattern. However, the COMPQ then pulled back on low volume to back test support at 2300. The COMPQ bounced off the uptrend line, so no head fakes here. Leadership stocks are still lagging which indicates the COMPQ is not out of the woods. The broader market is at a technical inflection point. This means that a big sustainable move is coming in the future. I believe that we are transitioning to a fast moving market. However, I do not know if this move is going to be sustainable up or down. I do know that the COMPQ is going to 2400, but it could go lower first. If all up trend lines are broken then that is another story. At this inflection point, the best course of action is too manage your positions and get into stocks that work regardless of their respective indexes and the broader market. As stated earlier, the divergence within stock performance in general is huge. Look at the divergence between the performance of NVDA versus INTC. Also look at the divergence in performance between the NDX and NEM whilst gold is making 52 week highs. Bottom line, this is a stock picker's market. This is a market where not much makes sense and it is demoralizing to traders. Well, don't forget to keep the big picture in mind. The big picture is that we are still above the uptrend line.
Russell 2000 iShares (IWM) - Daily Chart
The daily chart illustrates that the IWM has traded in a nice uptrend channel since it placed it's lows in October at $60.91. Today the IWM continued it's move higher. The fast money is still in this sector. As you can see from the chart, indicators and oscillators are bullish. There is no bearish divergence. Today, the IWM rose 2.09 points to close the day up 2.80% at $76.70.
Ryland Group, Inc. (RYL) - 5 minute Chart
The 5 minute chart of RYL is a good example of tops and bottoms. Tops are slow and long and they drag out forever. In contrast, bottoms / accelerations are sharp and fast. As you can see from the RYL chart, the bottom was placed as volume declined and a slow bleed, then the V shape reversal was sharp and fast which indicates that the bottom is in.
#1 I Still Think We Are On The "Verge" Of A Massive Move
#2 Miss Cleo Still In Jail (I Think) But "Juice" Is Coming In And It's Blatant (Not Even On The Sneaky, Flat Out Blatant)
#3 Every Sector Looks The Same "Everything" Is On The Verge, Brink, Edge Or Cusp Of Something "Fast And Massive"
1. "The Trend" Tells You Direction
2. "The Pattern" Tells You The Distance
3. "The Wave Structure" Tells You The Speed
This update is for "index followers" April 18th 7pm ET