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Stock Market Commentary

The next downleg begins. Overall, the large point loss in the indices was offset by the lighter volume. It will be important converged 20-day and 50-day MAs hold as support if the Santa rally is to continue - any decisive break on volume would likely coincide with a counter-break of the ascending triangles which have played out quite well (so far).


One thing that will have bulls worried is the VIX rally just shy from its 200-day moving average support; there could be more to this decline than a simple support test. However, the double top neckline will be the first resistance test for the VIX. Look to the break of the bearish divergence in the RSI as the first sign of a rally in the VIX.



Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Nasdaq wedge breakout

On a closing basis the Nasdaq has managed to crack through resistance, but has done so on a background of falling money flow and overbought momentum. The developing bearish divergence in money flow isn't helping


The good news is the freed room to 2,100 and/or 200-day MA, assuming it can hold above former resistance (now support) as marked by the broadening wedge.

I haven't seen the TICK this consistently bullish in a while; no real overbought condition either which is unusual considering other breadth indicators


A downward move looks likely today based on futures, so it will be matter of where support will kick in, and from that, what we are lookng at from the broader picture

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Stock Market Commentary

Markets shrugged off overbought conditions to post gains on higher volume. The day registered as an accumulation day for all key indices. One watch area is declining resistance for the Nasdaq 100 dating back to late summer; a break will set a precedent for the other indices to follows


Biggest winner on the day was the semiconductor index with a 5% gain. It too is approaching late summer declining resistance with room to challenge the 200-day MA should it break - again, this would provide a boost for the other indices.


So which resistance level will come into play?

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Breadth indicators getting toasty

It hasn't taken long for stocks to push above their much weakened 50-day MAs, but the 200-day MAs are still a long way from been challenged. The Nasdaq is overbought for the current cyclical bear market with respect to the Percentage of Stocks above their 50-day MAs and Percentage of Stocks on Point-n-Figure Buy Signals. But the Summation Index has upside room, and the 'dead mans' zone between the 50-day and 200-day MAs will provide wiggle room for stock gains without further overheating of breadth


What has been disappointing is the underlying strength marked by improving breadth hasn't translated to points gains for the Nasdaq. I think we will see a gradual decline in the Percentage of Stocks trading above their 50-day MAs as overbought levels are relieved - but this will be compensated by a growth in stocks trading above their 200-day MAs as new market leadership emerges.

The Bullish Percents will return to pre-2007 support/resistance boundaries and the 42.5% resistance level we are seeing now (which was former cyclical bull market support - not even former bear market resistance) will be broken to the upside.

All this will have the net effect of adding points to the Nasdaq score board, but once the Bullishp Percents get around the 60% level (and/or the Summation Index gets to zero) we will have an intermediate time frame top lasting a few months.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Stock Market Commentary

A day when bulls could breathe a certain sigh of relief as last week's low volume gains held in all markets. Volume did rise to register a 'distribution' day but the lack of range to intraday trading suggests no real selling at work.


Best thing about the indices (which triggered Friday) was the net bullish turn in momentum, trend and volume indicators; this strength held through Monday.

Small caps continued to lead as declining resistance, 50-day and 20-day MAs remain decisively breached:


So far so good...

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Weekly Stock Charts review

With the New Year well under way it's time to see what has passed over the past couple of weeks.

Yong Pan has a swathe of short term 'sell' signals with creeping weakness in the longer time frames:


Looks like we will start the full trading year with a shot of downside:


With that background, how will the ascending triangle breakout hold?


Long term signal(s) still some way from a new short signal (bears beware):


Maurice Walker looks at the moving averages:

The Driving Forces Of Momentum:
Crosses, Candlesticks, and Histograms

There is no doubt the volume is the final authority as to whether a directional move has any longevity. But moving averages and candlesticks can play an important role in helping us know if the move is legitimate, and be the driving force of momentum.

A variety of moving average crossovers are used by traders these days. My personal preference is the double crossover method which utilizes the 5-day EMA with 20-day SMA (see the S&P 500 chart on page 3), and the triple crossover method, which implores the 10-, 20-, and 50 day EMAs which I call the moving average trio. The simplicity of moving average crossovers add to their appeal. When they cross it signals that a trade must be made. Regardless of which combination of moving averages are used or preferred, the trader is still looking for the same result. Momentum! Now I have been burned more than once on trade, getting a bum steer on a moving average set up. But there overall performance out weighs those occasions I found them wanting.

Both moving average systems I use, mentioned above are now bullish. That means it is a favorable environment for longs. Last week , on December 30 the 5-d EMA crossed above the 20-d SMA. Then the 10-d EMA crossed above the 20-d EMA on December 31. Previously the 10-/20-d EMAs were drifting sideways.

One solution to false moving average (MA)signals that lead to whipsaws, is to use MAs in conjunction with candlesticks to help determine just when, in the vicinity of a moving average crossover, the balance of power has shifted from the bulls to the bears or vice versa. For instance, this past week we saw the 10-d EMA cross above the 20-d EMA on December 31. The following trading session, we got a breakout of overhead resistance, producing the third candle of a bullish three white soldier pattern. This pattern is confirming the moving average.

I have listened to a lot of technical traders in the past two weeks and most of them have salted there verbiage with bearish overtones. Despite, a barrage of pessimism among invertors and traders, I have continued to remain bullish on this market. The reversal signal came on November 21, when we saw a bullish engulfing reversal transpire on the daily charts. That pattern got a follow through as prices rocketed higher. From there, prices pulled back forming the right shoulder of an inverse head and shoulders pattern manifested on the hourly charts. The successful backtest of the broken intermediate trendline on the daily charts, served as support while prices moved in a lateral range forming various triangle patterns. Those triangles (continuation patterns) broke out on Friday.

We believe that the rally will carry prices to key resistance on daily charts. Take a look at the 60-minute charts of the DJIA, S&P 500, and the QQQQ below, and you will notice how the upper boundary of the minor trend channels in that timeframe intersect with horizontal resistance from the November 4 minor highs (election day in the US). The upper channel is rising resistance, which is pointing straight at horizontal resistance. That means that the 1007 level on SPX and the 9650 level on the DJIA will eventually ram right into a double dose of resistance. I suspect that this will occur just prior to the 4Q GDP being announce in January. I am betting that prices will run into resistance, while having to digest terrible economic data, which will be too much for the market to bare and extinguish the rally.

In late January and February, I anticipate that the ride will end, as the market takes a detour, driving right into the back roads of a desolate area, on a very bumpy road, with plenty of pot holes. I'm looking for more wild swings for multiple right shoulders to form on the daily charts. Then I expect the complex inverse head and shoulders pattern to be completed come March, and subsequently breakout.

Could I be wrong? Of course. If the technical picture changes I will be forced to reevaluate my analysis. But so far, this analysis has been spot on, and I won't abandon it unless my indicators say otherwise.

Two More Bullish Signs

The ADX has been a very valuable indicator to us in 2008. It forewarned of the September sell off in late August, by producing a bearish cross on the DI lines as the ADX began to rise. The Aroon confirmed the ADX indicator by flashing a sell signal on September 4 and the MACD on September 3. This past Friday marks the first time we have see a bullish cross of the DI lines on the index daily charts since late August. I believe after this initial run up, that the DI lines will begin to weave back and forth, while the right shoulders are being constructed. Once completed, I think prices will move higher as the positive DI line soars. Right now the ADX line (black line) is still falling, suggesting prices will rise as volatility declines, but no long term trend will be validated until the ADX line bottoms and begins to make its way back up and then rises above 20. Therefore, I submit shall not occur until after the right shoulders are complete.

The weekly histogram on the indices have moved above the zero line this week. That means that momentum has shifted in favor of the bulls. Next to a divergence, I think this is the most important signal in technical analysis. This histogram's push above zero allowed the MACD to get a bullish cross on the weekly charts, and we also saw a bottom failure swing on the RSI of the DJIA this past week.

1/3 -- The short term mini from Santa week extended itself on Friday to where it has broken the sideways action of December on the upside for the major indexes. This is certainly positive, but is still just a narrow minichannel and is heavily influenced by end-of-year seasonal effects. If it is to morph into a full-fledged short term upchannel, it will need to correct back to a point that can define the lower line. Meanwhile, the one-year charts are all looking better as breakouts of the one-year line are creating nice upward channels in which there is still a bit more upside.

1/1 -- Another year hits the history books, but the trends continue. The short term picture is that we are still in the predominantly sideways channels of the past two weeks or so that evolved from the original December rebound. The rally during the last two days of 2008 simply brought us back near the upper lines of that horizontal channel (though the RUT hit its upper line dead on and fell slightly back already.) While the New Year's pop was largely window dressing, history suggests the move may continue into the first week of the new year. The upper lines can be expected to provide resistance, but if momentum is strong enough, the indexes may eventually punch through, putting them back in short term uptrends. The small caps almost always lead the charge in early Jan if you are inclined to play the upside here.

Meanwhile, there was an important development on the one year charts. The Naz, QQQQ and SPX all broke their one-year downtrend lines! (The Dow and the RUT had broken a while ago.)As a result, the indexes now all show a mini channel heading up through the one-year channel line with additional room on the upside. They may (and in fact are likely to) retrace at some point back toward the breakout line, but we at least know the one-year down channel has been broken and that's a very good sign.

Happy Christmas!

Back in the New Year.

-EOM-

Weekly Stock Charts review

The last real trading week of the year has been a bit of a mixed bag. Santa will soon have come and gone, so is this it for his rally?

Yong Pan has taken a distinctly neutral tone to his S&P breadth indicators, although his S&P take is bullish (with the exception of the single bearish signal 'creep')


The bearish wedge remains in the SPY, except now things are looking overbought (and vulnerable to a sell off):


Breadth indicators all showing 'buys'; intermediate time frame bullish even if the short term is a little rich:


If there is a consolation prize it's that there hasn't been a significant distribution day since the post-Thanksgiving sell off:


Maurice Walker has a bullish cross on record for the Aroon indicator:


Maurice anticipates this rally lasting until the end of January (I think it will end around this time too) when 4Q GDP is released:

The 4Q advanced figure will be announced towards the end of January 2009. I think the market will rally for a while and peak towards the end of January, as this number is announced. I believe that it will set off a knee-jerk reaction at key resistance forming a neckline on the daily charts, setting up a complex inverse head and shoulders pattern. The 4Q GDP data will allow the right shoulders to form, bring about violent choppy moves in February. I plan on selling at resistance using the hourly/daily charts, and then swing trading the sporadic moves using forming the right shoulders via the 15- and one minute charts.

The Aroons on the daily index charts got bullish crosses last Thursday. There are three methods of interpretation for the Aroon. These are rules that can be applied to help us trade the market.

1. If the Aroon up remains steadfast between 70 and 100, a new up trend has been signaled, expect prices to rally higher.

2. If the Aroon down falls below the level of 30 while the Aroon remains above 70, it indicates that the rising trend is strong. When the Aroon up is at 100, it tells us that the bulls are back in town, and a trader can anticipate a very strong trend.

3. When the up and down lines move in sync, parallel to one another, a consolidation phase is under way.

Just after the election day highs on November 4, prices on the S&P 500 and the DJIA began to for the head of larger complex head and shoulders pattern on their daily charts. That has caused prices to move lower, dropping below the left shoulders and then begin to rise again in a V-shape. This has developed a lateral trading range between 1007 and 741, where consolidation is occurring developing our large reversal pattern. But now the up and down lines have parted, going their separate ways on the S&P 500 daily chart. Last week, the Aroon lines crossed, a the Aroon up moved above 70, while the Aroon down dropped below 30.

This crossover was confirmed on the S&P 500, by the Aroon oscillator nudging above +50, for the first time since our September 4 sell signal came. Notice that in mid-November the Aroon got a bullish cross, but it was never confirmed by the Aroon oscillator.

Now those of us who use technical analysis got several buy signals that have already put us long ages ago. But with the MACDs on the daily charts hovering just below the zero lines, this bullish event on the Aroons, could be signaling that they are about to move into positive territory. If the MACDs rollover at the zero lines it would murky up the waters of this rally. Right now the odds remain with the bulls. But the zero line on the MACD is the line in the sand. The bulls need to penetrate through it in order for the momentum to continue.

The short-term momentum on the stochastic is bearish. The stochastics put in lower peaks on the daily charts and then hooked over having turned bearish. The saving grave is that they remain above the value of 50 for now. A push below 50 on the stoachastics could pull the bearish trigger on the MACD.

The VIX daily chart did a free fall to the double top confirmation line near 44 %. The catalyst was the VIX hourly chart, which broke down from a head and shoulders top, as the second peak was carving out the double top patten on it?s daily chart. Additionally the VIX say it's direcitonal movement indicator (DMI) get a bearish cross early last week, as the postitive DI crossed above the negative DI line. Meanwhile, the ADX line bottom and is now inching its way back up to 20. That is a bearish sign for the VIX and may help the bulls put the final nail in the coffin on VIX's casket. Last week the VIX?s MACD moved below the zero line in weakness. The VIX may become a bit stubborn in breaking it's DT pattern. It may kick in it's heels, at the confirmation line and even attempt to rebound. But I do think the bulls will cause the VIX to be dragged below the confirmation line at 44 %.

12/20 -- This past week importantly shows that the short term uptrends off the lows just before Thanksgiving are waning and have gone essentially sideways. (The large caps are actually now trending slightly lower while the small caps are still trending slightly higher -- remember, this is the time of year that starts to happen.) All equities are waning, however, and that could well be the precursor to a resumption of the decline. (A healthy premium in the VIX January futures supports that contention.) The Naz is coming up to its long term downtrend line and the QQQQ is right there also (RUT already punched through), but the Naz is up 23% off its low in a month. Can you justify another big up move from here on top of that?

The longer term charts did break a number of one-year downtrend lines before pulling back. I suspect these breaks will turn out to represent a new slope for the long term downtrend rather than a bonafide break back to a long term uptrend yet. Given the expectations for the length of this recession, that would make a lot more sense than any kind of sustained upmove yet. If that is the case, we would trade lower toward a retest of the lows in the first quarter. At this point, however, end-of-year window dressing and tax selling will likely kick things around over the holidays first. In the immediate term, we have rolled over into a downward mini and we'll just have to see how that plays out.

GLD is finally correcting after making a perfect hit to its declining long term line. A little patience may give you a chance to get long GLD at a much more attractive price.

Rising trends slowing; Transports and Semiconductors key

Richard Lehman noted the change in slope of some of the early bull trends off the November lows. The reversal off the 50-day MAs was a big negative for me as the indices made a half-hearted attempt at defending them. Are things going into lockdown up to Christmas? Early vacation takers might see today as the last trading day for the year...

I would like to see the Transports do more in the light of weak oil prices. Things to watch:

For trend strength to continue its swing bullish, perhaps signalling a stronger start for 2009


My other sector watch is the semiconductors. Yesterday's strong reversal off the 50-day MA was very discouraging.

Trend strength is more favourably bullish than for Transports; should help in the long run


Expect light posting over the next couple of weeks. Hope all my readers have a good Christmas and New Year!

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

New KIVA loans

Another three new project loans made possible from repayments by others. This brings the total number of loans made to 88. It should be noted I have experienced only 4 defaults (4.24%) which is above the average of 2.85% but I still think is real good considering - especially when you compare it to first world defaults on subprime loans....


You can find more details on these individuals here.

If you want to join the fun you should sign up for KIVA, or simply subscribe to my newsletter and your first month's payment will be allocated to a KIVA project of your choice.

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Money flow up sharply as S&P holds 50-day MA

A new 6-month reaction high in the Chaikin Money Flow indicator suggests bullish momentum holds sway as the S&P works on holding its break of the 50-day MA. Stochastics aren't overbought so there is room to the upside.


The potential pitfall is the rising wedge pattern for December, but even if this breaks I doubt it will make it all the way back to its start at the November low. Potential for a bear trap.

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Large caps through; Tech and Small caps tag 50-day MA

After months of struggle the Dow and S&P were able to push through their 50-day MAs following the Fed announcement on rates. The Nasdaq and Russell 2000 finished right on their 50-day MAs, closing shy of an actual break.

With the exception of the NYSE, yesterdays gains didn't turn associated index stochastics overbought, preserving some leeway for further gains.


McLellan Oscillator bullish


Although the TICK is overbought


Will the market view the Fed rate cut in a more negative light? Has the Fed shot its last bolt? How markets behave around their 50-day MAs will be telling. I still think there is more juice to this rally as breadth indicators, while neutral, are nowhere near overbought - even by (new) bear market standards.

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Weight of 50-day MAs

Bulls did a fair job of keeping the indices near their 50-day MAs. Now it's a question of holding rising support from November lows and breaking these averages; or losing rising support and retesting November lows. Prior demand favours a breaks of the 50-day MAs.



Summation Indices firmly bullish; note 2 fan breaks already with a double bottom in each of the summation indices - if markets play to form they should take out November highs.

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Weekly Stock Charts review

It's off and rolling for this week's review. A pending rate cut on a weaking dollar should be good for commodities; but how will our Stockchart.com ers see it?

Yong Pan has seen an increasing number of neutral readings in breadth indicators having moved away from previously bullish positions. This is inevitable as part of a rally, but it leaves the market vulnerable on weakness.


I like the possibility of a bullish triangle in the SPY, but the downside target cannot be ignored if instead a rising wedge plays out:


Maurice Walker sees the rally in "good standing", with the backtest of the head-and-shoulder reversal pattern complete.


Maurice pins his colours to the mast:

Right now there is descension in the ranks of the bull camp. There is more than one doubting Thomas who was previously in the bullish camp, who is refuting the bullish portrait that has been painted here. But I for one am a believer! The bulls announced their arrival very boldly when they penetrated the downward intermediate trendline. Left unfettered and unshackled, the bulls have caused prices to make an abrupt U-turn, and I don't think the bulls should lose heart so quickly attempting to wrap a blanket indictment around this rally. This rally is innocent until proven guilty!

Some of these so-called weak-kneed bulls, claim this rally is crumbling, as they are so quick to throw this rally under the bus. But every technical indication that I'm seeing right now, shows that the bulls appetite is growing. They continue to dine on a feast of accumulation. And those bulls, who are now waving the white flag of surrender here, are doing so prematurely on this retest battlefield. Because no technical violations have yet to transpired. I think the three white candlestick pattens, that lead this open revolt against the bears will continue to go on conquering, liberating price action to advance in what I call the renegade rally.

He follows:

The weekly charts continue to have rising histograms which is bullish. I am watching to see if that allows the weekly MACDs to get a bullish cross in the near future. We are also watching the weekly RSIs for a bottom failure swing (see S&P 500 weekly page 2). So far the weekly RSI is wandering aimless sideways, unable to decisive spring above the previous peak that separates the two trough lows on the RSI. But should the RSI rise above that point, prices will skyrocket.

the VIX 60-minute chart continues to for a bearish head and shoulders top. If it breaks down below 44, then we will see the double top on the VIX daily chart play out. This will bring about a massive rally, and that is why I believe that we are ready for blast off. But once resistance is tagged, it will be time to abandon ship as the right shoulders form on the daily charts.

With the new trendline I drew on the DJIA hourly chart, the H & S pattern now measures 1708 points, which could take the Dow well above the 10 K mark. That would allow inverse head and shoulders patterns to set up on the daily charts. I continue to believe that prices have already broken out of the starting gate, and will race up very quickly to resistance on the daily charts. These thoroughbred prices will trot up to resistance like never before, as the Dow, S&P 500, Russell and Nasdaq dash towards the finish line in order for a photo finish. And the bulls that placed bets on this Kentucky Derby of a market, will be in the winners circle with a reef around their head.

By the way, we dub it a 'handle' because it resembles the handle of a tea cup.

I continue to play the long side holding the proshares: DDM, SSO, QLD, UWM.

Look at Maurice's 60-min S&P chart to see its influence on the daily chart:


Richard Lehman has gone with new (slower) rising channels anchored by the December 5th lows:

12/13 -- What we now know is that the short term uptrends changed to a flatter slope this week, with two exceptions. The Naz and QQQQ thus far held to their original slopes (and gave us perfect bounces off the lower lines on Friday). There are seasonal influences that usually prop up the small caps more than large caps in Dec-Jan, so that may be what's going on, but both these indexes also have the lower peak in the channel that led the others to break to a flatter angle, and that could still happen on the Naz and QQQQ as well.

The weakness that brought the short term charts down to support or broke them to flatter angles also brought the breakouts on the longer term charts back down for a retest of the breakout lines. At least one (XLF) is now questionable, though the others have successfully retested thus far.

So...we're heading up, but its more likely we're seeing an end-of-year tailwind than any kind of all-clear signal. Personally, I'm using this rally to get back to cash right now, as 2009 will not be a picnic.

2009 will be an interesting year and I think (like Richard) that it will be a tough one. However, he has market a clear channel breakout on his Dow daily chart:


Joe Reed has his week in review:


Keep an eys on shipping transports, they appear to be catching a bid:


I'm surprised I haven't noticed this elsewhere, but the S&P made a nice bounce of closing weekly support:


But a more bearish tone on the Retail Index:


Finally, George Zimmerman has an interesting chart showing the conflict between bulls and bears using Andrew's pitchforks. The other point of note is the very thin volume (and therefore supply) between 9750 and 10,750 - this is where a Santa rally will move up quick and fast:



If you would like an alernative to Stockcharts.com, with free with real time BATS data, charting service with save and annotation features (soon to launch with chart profiles) then give Zignals a go. We welcome all feedback!

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Zignals: When New Lows reach Extremes it may not be Bullish

For the latter part of 2008 the number of stocks making new lows soared as the corresponding reverse for stocks making new highs flat-lined. This typically is considered a capitulation and a strong indication for a bottom, but it may not mean a bottom for all stocks.

In 2003 to early 2004 the reverse situation occurred where the number of stocks making new highs wiped the floor of stocks making new lows. The first peak in mid-2003 did not mark a top as may have been expected, although the shift in momentum following 3 years of selling was enough to keep the bullish advance intact.

The second peak - which closely approximates the second peak markets are making now in new lows - did mark the eventual top for that cycle, but it did not bring a collapse in market prices; instead it kicked off a steady advance where the trend in stocks making new highs fell as fewer sectors (and therefore stocks) participated in the rally. Eventually the last sector standing was the energy sector which eventually popped.


Could the reverse scenario play out?

Markets continue their decline but sectors like Transports, Regional Banks, Consumer Staples, Budget Retailers should do well and later, Technology and Services sectors too.

In the near term some form of relief rally can be expected, but longer term this slump may take considerably longer to work its way out of the market. The 2000-2003 decline didn't have to contend with the damage we are seeing now; partly because the decline was related to over-inflated (non-earning) technology plays; 'old economy' stocks were still making money. The current decline has smacked every company bar a select handfull and this will take a lot longer to work its way out of the system.

Buyer beware.

What does this mean for your stocks? Make a call in Zignals Stock Charts and share your thoughts.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts, and stock charts website

Failed Bailout means test of December 1st lows.

Futures aren't taking kindly to the failed bailout of the US auto industry. What this means for today is a probable test of the low created by post-Thanksgiving/Monday selloff. For the S&P we are talking around the 820 mark:


One can see from the TICK that short positions are favoured. But the significant bullish divergence in the number of stocks making new lows favours a more meaningful rally similar to that of this summer (where the prior reaction high got knocked out - even if in the end the S&P continued to tumble). The best case scenario here would be a rally all the way back to declining resistance in the 1,200-1,300 range.


It will take baby steps first; look for retest of 820 than rally to 1,000 before a another run at 850 before the final push to and beyond 1,000. I would give this a time scale of 2-6 months.

Lets watch and see what happens...

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Markets Behaving Well

With the indices spending another day near joint resistance of declining channel lines and 50-day MAs, each are nicely set to push higher, although momentum oscillators favour a retreat. The Nasdaq looks best positioned to move higher as it spent a third day above 1,534 near term support.


Transports behaving well with the slump in oil prices. With stochastics overbought it will be important for the next downleg to make a new higher low:


Same goes for the S&P; the mini-pennant for the past 3-days is likely to breakdown given overbought stochastics and the presence of its 50-day MA overhead.


There is more to like here about the markets and I suspect the real value buyers will take advantage of the next downleg, thereby helping in creating the higher low.

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Breadth indicators on their 5th attempt at a bottom...

The ol' guard breadth indicators have had a rough year detecting the bottom. I was of the opinion the January bottom was 'the One' but this was later proved to be folly once the July retest collapsed in September.

We now have new lower boundaries for the breadth indicators which gives us a base going forward. These boundaries show considerably upside room - even if this room is only to former bull market support (let along resistance!).


The late October attempt at a bottom wimped out with new market lows, but as happened in March we have a bullish divergence between the breadth indicators and the market itself. Even in March this was enough for a 2-month rally. Another 2-month rally here would fit seasonal trends in addition to been a welcome relief.

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Inflation round the corner?

One of John Murphy's intermarket watch areas was the relationship between the 10-year treasury note price and the price of oil. The patterns of inflation, stagflation and now deflation are clear for all to see. I had posted on the shift to stagflation in February 2008, but things look very close for a return to inflation given the disparity between the two.


Inflation is a normal course of action in a strong economy, but how this will impact on the current state of affairs remains to be seen. When inflation does return it will be bullish for commodities and commodity based stocks, but I am still of the belief gold has to drop more in line with other commodity prices - with that of other precious metals - before a bottom can be declared in commodities and the next up leg (with inflation) can begin.

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Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website

Weekly Stock Charts review

A relatively respectable close to the week after Monday's horrors, how did the Stockchart.com folks see it?

Yong Pan's S&P and breadth watch has seen nascent bearish signals turn neutral/bullish. But he is waiting for the rangebound action to break before getting too confident.


His charts show technicals in a more neutral position; could go either way:


His observation on action following the November bottom is bullish:


Breadth indicator buy signals matched with bullish divergences in those indicators and a bullish wedge breakout:


Maurice Walker saw Friday as a gunfight between bulls and bears.

The bulls have take bold action and aggressively pushed prices above the intermediate downtrend, causing the inverse head shoulders pattern to garner support, which means that it has a strong chance to flourish and play out. The bulls took a leap of faith across the trendline, not allowing the bears to chip away at this rally any further, and sent them packing to get out of town before sundown. Well, they got out of Dodge alright, but they went out in a blaze of glory, dragging the market way off the all time highs of October of 2007. But now they are wanted dead or alive by the bulls, who will either take them prisoner or shoot them on the spot.

He has gone for a 'buy' in the S&P:


His 60-min charts mark in the reversal head-and-shoulder pattern:


Agree with his assessment on the daily charts:

Well, a trend is a trend until it isn't, and most of these trendlines are being taken out, with exception to the Dow. The SPX, NASDAQ, QQQQ, Russell 2000, all broke their downtrends today on mediocre volume. The breakouts are not decisive. We still need to see a follow-through with expanding volume in order to confirm the breakouts. However, the DJIA didn't breakout, stalling after it slammed into the intermediate trendline. I do expect the Dow to follow suit.

When a trendline breaks, prices will either retrace rapidly or consolidate forming a reversal pattern. In this case the latter is likely true, with an inverse head and shoulders pattern slowily being carved out on the daily charts.

With the breakouts on the daily charts, and the head and shoulders patterns successfully holding up on the hourly charts, I am once again playing the long side. Furthermore, the 5-day EMA touched the 20-day SMA in a bullish double crossover kiss. This is extremely encouraging, I didn't think it would come until early next week. Now let's see if the 10-day EMA can cross above the 20-day EMA. The Aroon down on the S&P 500 daily chart (pg 4) is now moving below 70 again, moving in concert with the Aroon up. Thus, confirming that prices are in fact trendless for the moment.

Richard Lehman's charts worked a treat this week. His Dow 5-min chart below:

12/5 -- Patience paid off as the Dow came right down to the green upchannel, took its magic turn, and gave us a 500 point bounce. SPX followed suit. In order for the large caps to come down to the green lines, the small caps had to exceed their green lines, which simply pushed their greens to flatter slopes but still heading upward. The bounce cleared the red mini as well, which is a confirming action.

The short term charts now have more room on the upside, though don't expect it to continue at the pace of 500 points in a couple of hours. Don't even be surprised with one or more 100-300 point pullbacks in there somewhere either. The important point now is that a number of the one-year charts are again sitting on the upper lines of the downchannels from last year. Those one-year lines have held back all rallies thus far, but the pullbacks have been getting shorter each time and this now looks promising for a break upward this month, even though I would expect that to result in more of a slope change on the one-year downchannels than any kind of 'V' bottom anytime soon.

12/4 -- Today's nasty surprise caused me to backpedal to the original green channel in most cases when the more bullish blue alternate was broken. There is also a red mini showing up inside that channel which may or may not be finished on the downside. On the whole, the short term bullish case was damaged today, but not ruined. The direction is still up, and even if the red mini extends further, it may still then turn up.

12/3 -- The upchannels continue and there are now two alternative slopes to many of them. Both are shown here, but I've drawn in the more bullish in several cases because it appears to be the way things are leaning. If we continue up in the short term, we may break the downtrend lines from last year that have held back every advance thus far. Be ready for that possibility as it could take us up to 9000-9200 fairly quickly.

Dr. Joe has his weekly watch up - doesn't see Friday's gains as bullish.