Trader's Tips Stock Market Newsletter

Published April 02, 2006

Long Term
The OEX high for the March trading month, reached a price level not seen in years. A trendline going through the 2004-2005 yearly highs caused this high, a few points from the 50% retracement area. The Monthly Close came up against the long standing Wedge line and formed another Hammer candlestick. Hammers are often found at the end of trends, especially when they show up near strong resistance/support levels.

In addition, a look at a Monthly Cycle10 chart shows that the overall advance from the October 2005 low, has brought this indicator well into it's sell zone, at levels where it would normally make a bearish reversal. So a possible scenario is that a top is forming here and the May projection, as outlined in the Stock Market Outlook 2006 Report, may come in the form of a Double Top pattern or a secondary top, where the peak comes slightly below the March high.

This QQQQ Monthly version also shows a March Hammer, near the Apex of a Rising Wedge pattern, with monthly Stochastic at the same time tracing out a bearish divergence pattern. A breakout ought to occur before the Apex (where the two trendlines meets) is reached. So a QQQQ monthly close below this Wedge, would confirm a top in place for the tech market as well.

From an Elliott Wave point of view, a five wave impulse structure from the Oct. 2005 low and a larger degree impulse structure from the 2002 low, has then most likely ended in the OEX and started the work on a three wave corrective phase. As long as daily trendline support remains intact and given the bottoming Cycle10, one more move to the upside is not ruled out though, although it may not violate the March high.

Mid Term
This updated OEX Weekly Chart shows the advance which started in Oct. 2005 from weekly trendline support, has reached an important weekly trendline resistance area. Weekly Cycle10 made a bearish reversal this week, so the tide may have shifted, with mid term weakness as a likely outcome or at least a pullback is probable, before heading higher again, into a potential May Double Top.

The Nasdaq Comp has gained ground in recent weeks and is well underway to the suggested 2400 target. An excerpt from the previous issue:
..."The Nasdaq Comp apparently found support on the cross point of two trendlines, mentioned in the previous issue. Cycle10 is in the early stages of an upside pressure phase. So the upper wedge line could be the target, short term (roughly 2400)."...

QQQQ Weekly is also in a favorable phase, after finding trendline support in early March.

Short Term
The OEX made a retreat after it ran into strong daily trendline resistance in mid March, with RSI 25 at the same time entering it's overbought zone. Friday's close came right at crucial support, produced by the crosspoint of two trendlines. It must hold to not open up for more weakness. The bottoming Cycle10 increases the odds for a reversal here, although it may turn out to be a brief move to the upside, before seeing a resumption of the overall trend lower. If this support fails to hold, L1 DGL (37.5% Fibonacci & Dynamic Gann Level) support comes in at around 585, the next likely level to ignite an upside reaction.

QQQQ Daily tested the key 61.8% Fib. retracement area (of the Jan. - March decline) mid week. Given the toppy Cycle10, odds are good this resistance area will hold (closing basis) and near term weakness is likely.

As for mentioning a popular individual stock, Google broke out to the upside this week, after going through months of weakness.

New High - New Low Index readings have improved since the last update but have yet to overcome the 2004 peaks, despite the new multi-year peak in prices. So the wide, several year long bearish divergence pattern is still there and cannot be ignored in terms of revealing the weak underlying technical picture developing, a typical setup before seeing larger, long term tops.

Transport Sector Chart Update ..."The Transport Sector can give clues about the development in the economy. I.e. more activity in transport companies often reflect more activity and orders for companies in general, which is positive for the stock market and vice versa."...

The TYX broke out from the Triangle to the upside, before reaching the Apex, as discussed in the previous issue. This week's close up against the 50% retracement area and a toppy Cycle10, could mean a pullback is coming.

The Dollar is still in a calm, bullish channel trend from early 2005.

Bullish Investors Intelligence Advisor Sentiment readings have more or less deteriorated so far in 2006, in the face of higher stock market prices. Using history as proof, the same divergence setup happened with the 2005 double top in the S&P 500, so it could be a warning about lower prices ahead.

The current 70.23 BPI (Bullish Percent Index) reading, also indicates an overbought stock market, which gives support to the bearish technical picture painted in the mid & long term sections above.

Other updated charts:

Put/Call Ratio

Forex - EUR/USD Currency Pair
Another Inside Week in the EUR/USD pair, for the second week in a row, trading within the previous week's range. The longer this market indecision continues, the more explosive the breakout could be. The directional breakout from this condition, is signaled by a violation of the previous week's high (1.2197) or low (1.1953).

Using daily closing rates only, this daily chart shows the potential for a positive start of the new trading week, given the current Cycle10 upside pressure phase and trendline resistance not yet reached. Any daily close above it, would increase the odds of seeing an upside breakout from the indecision in weekly rates.

Here is a longer term chart of the EUR/USD, (last updated 03/31) which also includes an Elliott Wave count as currently interpreted by the Advanced Get software. The Elliott Wave Oscillator is usually good at filtering out minor price "noise" and tend to show true trends.

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