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What Will Tip the Scales?
07/30/2014 10:15 am EST
It will take a sharply lower close to shift the balance of evidence clearly to the downside, while a higher close will just keep the recent trading range intact, so MoneyShow’s Tom Aspray looks to the charts for signs of a failure or an opportunity in an inverse ETF.
The stock market has started off the week in a choppy fashion and Tuesday’s weak close has turned the focus back on the downside. Once again, the Dow Transports led the market lower and the A/D ratios—which were positive mid-day—closed negative.
Of course, the very strong earnings from Twitter, Inc. (TWTR) pushed the stock up almost 27% in after hours trading. This should give investors some hope for Wednesday’s session but the second quarter preliminary reading on GDP will play a much more important role.
Many of the key A/D and volume indicators have been diverging for several weeks as I pointed out in Let the Late Buyers Take the Risk. This increases the market’s risk. It will take a sharply lower close to shift the balance of evidence clearly to the downside as we head into the widely anticipated monthly jobs report.
Overseas markets are slightly lower while the US futures are a bit higher ahead of the GDP report. A daily close in the S&P 500 futures below 1960 would signal weakness while a close back above 1980 would be encouraging. Let’s look at the evidence.
Chart Analysis: The NYSE Composite gave up much of the prior day’s gains on Tuesday as it closed on the lows.
- The daily chart shows support going back to late June, line a, in the 10,878 area.
- The quarterly pivot is at 10,758 which is just below the 38.2% Fibonacci support from the April lows. The 50% support level is at 10,687.
- The NYSE Advance/Decline line has been below its WMA since last week.
- The A/D line peaked in early July and—since the NYSE did not make a further new high like some of the other indices—no negative divergences are evident in the A/D line.
- The A/D line has important support still at line b, and a drop below this level would be negative.
- The McClellan oscillator has declined back to -138 after rebounding back to -33 last week.
- There is initial resistance in the 11,000-11,038 area with last week’s doji high at 11,058.
The Spyder Trust (SPY) barely held above Monday’s low at $196.62 and chart support, at line e, in Tuesday’s session.
- A daily close below $195 is likely to complete a short-term top with the quarterly pivot support at $191.24.
- The SPY’s new high on July 24 (line 1) was not confirmed by the S&P 500 A/D line as it has formed lower highs, line f.
- The A/D line is now testing important support at line g.
- A drop below the late July lows will confirm the divergence and the length of the divergence allows for a multi-week correction.
- The OBV has also failed to move above the early July highs, line h.
- The OBV has important support now at line i, which goes back to last month.
- The 20-day EMA is now at $197.53 with further resistance at $198.45.
- The high last week was $199.06 with the trend line resistance (line d) in the $199.50 area.
- The preliminary monthly projected pivot resistance for August is at $201.02.
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- DIA is already down 0.5% from its recent high at $171.14 as Tuesday’s close was below the uptrend, line a.
- There is further support from June and July in the $166.48 to $167.52 area.
- The preliminary monthly projected pivot support is at $166.11 with the quarterly pivot at $165.27.
- Tuesday’s rally fell 3 cents short of filling the gap from last Friday’s opening.
- The monthly projected pivot resistance is at $170.84 with the July 17 high at $171.14.
- The Dow Industrials A/D line did confirm the price highs but then broke its uptrend, line b, last Friday (see arrow).
- The WMA of the A/D line is also now declining slightly.
- The on-balance volume (OBV) did confirm the all time highs but is now below its WMA.
- The OBV support, at line c, is now on the verge of being broken.
- The weekly OBV (not shown) is now testing its WMA.
The PowerShares QQQ Trust (QQQ) tested the upper boundary of its trading range last week as it made a new high at $97.51.
- For August, the monthly projected pivot resistance is at $99.79 with quarterly resistance at $101.45.
- The rising 20-day EMA is now at $95.64 with additional support at $94.32, which was the July 17 low.
- The uptrend, line e, is now in the $94 area with the monthly pivot at $92.82.
- The monthly projected pivot support is at $91.49 with the quarterly pivot at $90.37.
- The Nasdaq 100 A/D line peaked in early July and has since been diverging from prices, line f.
- The A/D line has important support now at the July low, line g, and a drop below it would be negative.
- The daily OBV shows a similar negative divergence, line h.
- The OBV failed to move above its WMA on Monday so an Aspray’s OBV Trigger (AOT) sell signal could be triggered this week.
- The OBV is also not far above the important support at line i.
What it Means: Though a lower close today could shift the balance to the downside, a higher close will just keep the recent trading range intact. Obviously, the weekly close will be even more important as a close in the Spyder Trust (SPY) below $195.43 will trigger a weekly low close doji sell signal.
The GDP report was just released, showing a 4% gain and the first quarter was revised upward. The futures are sharply higher in early trading and yields have spiked upward.
How to Profit: I will be watching the GDP rally closely for signs of a failure and traders should watch my Twitter feed in case I see an opportunity in an inverse ETF.
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