I promised myself I wouldn’t show you another historical chart here, but I can’t help it. The reason? That November 2008 chart continues to work. We got that one week 20% rally off the low followed by the pullback and now followed by another rally.
I should point out that it shouldn’t end up looking similar in that the shape of the chart will look quite different – and it already does. But it took weeks before the market headed back down and that’s the focus here.
Away from that, let’s talk about Monday’s action. We had 90% of the volume on the upside, which is a positive. The McClellan Summation Index saved itself from rolling over and instead turned back up. It now needs a net differential of advancers minus decliners of negative 2,200 to turn it back down, so there is a cushion.
Also the S&P 500 crossed that downtrend line that I drew in. I drew in the same one for the PowerShares QQQ Trust (QQQ:Nasdaq) last week. Here is the QQQ chart again. The next serious resistance area shows up around $200. On the S&P, it’s around 2700.
There will also be a great debate as to whether this is an island on the chart of the S&P. I am going to say, yes, with some caveats. That’s because there was trading there the week prior. For now, I would think support for the S&P is around 2500, which would be a retest of that downtrend line this week. That number goes down as time goes on.
What wasn’t so hot? Breadth. Sure, at positive 2,450, it was a good day, but two weeks ago, the S&P was up 6% – as opposed to Monday’s plus 7%, and net breadth was positive 2,550. It’s not a big difference, but when we look at the chart of the cumulative advance/decline line, we can see that the S&P is higher than it was a week ago and breadth is lower. We’ll watch that.
I would not be surprised to see the market back off on Tuesday, as it is short-term overbought. The intermediate term is still not overbought, though. That chart is shown below.
Also, I forgot to note Sunday that there is another basing chart out there – there will be more as I find them – and it is Biogen (BIIB:Nasdaq). This is a chart that based, gapped up, then spent the last five-to-six months in a trading range. Think of the Goldman Sachs (GS) - Get Free Report chart we looked at from the 2000-2007 period on Sunday; the last several months would be the equivalent of the period after GS finally broke out over $75, ran to $90 and then backed and filled between $70 and $9.
Amazon (AMZN:Nasdaq) has gotten up here once before and had been rejected. I am still waiting for that gap to fill at $2,100.
The SPDR Gold Trust (GLD) - Get Free Report acts just fine, but there is resistance not far overhead and the Daily Sentiment Indicator got to 90 Monday. I suspect even if it can get through that resistance, it won’t go very far over it. I’d get more interested on a retest of that downtrend line.
The 30-day moving average of the advance/decline line is discussed above (the intermediate-term overbought/oversold trend).
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Shopify (SHOP) - Get Free Report did not fill the gap at $375 and bounce, but gapped down under it and is now filling it on the way back up. It is trapped in a triangle, so it should make another try for that $425-$430 area. What would change my mind is if it cannot rally up and over $410. If it fails at $410 or less, then I think the chances of it breaking the lower line on the next trip down goes up. Otherwise, trading range.
Boeing (BA) - Get Free Report filled that gap near $125, (actually it more than filled it by going to $120), but it made a higher low. The big test is not at $170-$180, where the downtrend line and the prior high are. For now I’d look for it to stop there.
The oil and gas exchange-traded fund XOP (XOP) - Get Free Report is a different chart and quite interesting. We looked at it recently, with the thought that as long as it held $30, it was worth a trade on the long side. No, the key is getting up and over $37. That doesn’t make it home free and clear, but it would be the first higher high in three weeks, so it changes the pattern. I would love to see it fill that gap at $50, but that might be asking too much. The OPEC meeting is Thursday morning.