Is the rally in the US equity market over?

Gold chart, April 19, 2013

Is the rally in the US equity market over? We think not. There are few reasons why we remain more positive than negative on the US equity markets. One of the reasons is, where else can money go to earn a decent return without the worry of a currency blow up or country freeze on your money? We, here in the USA, are or seem to be safer than other places in the globe to place money. Our currency seems to be more secure and our economy isn’t as awful as others seem to be. Some of our corporations with global exposure seem to be having earnings reflux, but the home grown types are plodding along, very slowly but in the correct direction.

Mergers and Acquisitions should being to pick up their pace as the year progresses. They were down about 37% this quarter. We would expect to see this number regain footing as corporations try to cut costs and increase profits by merging with like partners. This is done to reduce employees and costs of doing business. Certainly this sort of activity does not help the employment front but does help the bottom line of the merged corporations.

Gold suffered a mighty retreat as scared money exited the trade. We believe that there will be a bounce in gold and that after that bounce, we will find out how deep the next retreat will be. We suspect that the retreat will print a higher low than the low seen this week. That action in gold would be positive for the short term.

Apple (AAPL) releases its earnings this week. The stock is pretty beaten down so expectations are low for good numbers. We would not be surprised to see that stock rally as in DCB (dead cat bounce, no offense to cats of course) once the earnings are out of the way. Where could that rally take the stock? Well 419 is a good high-end number and is possible.

The US Dollar Index should be avoided by those with a history of chronic anxiety, depression and cardiac abnormalities. Advice of a physician should be sought if one of the following symptoms is experienced while trading/analyzing the US Dollar Index, shortness of breath, tightness in the chest, and loud outbursts of profanity. Well, no, this warning does not accompany the index and perhaps the sort of volatility seen as of late is not unique to the index noting the erratic moves in the S&P, Gold, Oil, even Natural Gas in the past week. On Wednesday the US Dollar Index broke out of a short-term down channel with violence and closed the Friday session up for the day at 82.74. The Bollinger Bands are currently flat with the upper band at 83.35 and the lower band at 82.12. The 20-period simple moving average is 82.74 and the 5-period simple moving average is at 82.63(the market is currently above both). The RSI, stochastic and our own indicator are all issuing buy-signals with the RSI having broken out of a down trend going back to Feb 26th. The 60 minute .05% x 3 Point and Figure chart shows we have executed a successful “bearish pattern reversed,” though this almost resembles a bull flag. We have formed a new objective up-trend line as well as an internal up-trend line and currently have an activated upside target of 84.72. There are, however; two activated downside targets at 82.32 and 83.14. Right now all signs point to a continued move in the upside and 83.62 (former high) looks attainable. By the same token, this is a very volatile market and there is downside risk to 82.14 and 81.82 below that.

The S&P 500 recovered all the Thursday losses in the Friday session. Thursday’s low of 1575 was just 0.75 higher than the high seen on February 20. We have a horizontal line there and it stands as a level that needs to be defending. On March 18 we dropped to 1529.50 and bounced off that level. Looks like we could return to a trading range for a while. We are above the Ichimoku Clouds for all time-frames. The stochastic indicator and the RSI are pointing higher however; our own indicator has not issued a buy-signal yet. The Thomas DeMark Expert indicator is pointing lower at oversold levels. The 5-period exponential moving average is 1549.87. The top of the Bollinger Band is 1585.32 and the lower edge is seen at 1530.67. The chart tells us that we must defend the 1530 level. Remember a breach of one day is not critical but a two day breach could lead to a much larger retreat. All of the indicators that we follow are pointing lower on the weekly and monthly charts. We are below the short-term uptrend line on the daily chart. We closed above the 50 day moving average and certainly above the 200 day moving average. The down trending channel lines on the daily chart are 1571.25 and 1524. If we close below the aforementioned horizontal line of 1530 +/- 1, then, we will open the door to 1481 or so. The Market Profile chart highlights the importance of the 1530.75 number. We notice that 1547.00 represented 10.6% of the volume on the daily chart while 1530.75 represented only 0.6% of that volume. The 1% by 3 box point and figure chart looks fine and does not support a negative outlook, however; the 60 minute 0.07% by 3 chart had some concerning moment with a upside resolution, well for now. The high box count is at 1548.50. Remember we found that the high volume number on the Market Profile chart was at 1547. The SAR has turned negative and is short the market. Remember that SAR is always in the market, either short or long.

The NASDAQ 100 left a higher low and a lower high in the Friday session. The candlestick was an inside day. The action of the market pulled the market above the Ichimoku Clouds for the daily time-frame and above the clouds for both the weekly and monthly time-frames. When looking at the longer time-frames the market appears to be testing the lower edge of an upward trending trading channel. The daily chart, however; looks as though the market has retreated back inside a previous trading range. The 5-period exponential moving average is 2778. The top of the Bollinger Band is 2855.66 and the lower edge is seen at 2739.35. Both the stochastic indicator and the RSI are pointing to higher levels. Our own indicator could give a buy-signal in the next two sessions but the Thomas DeMark expert indicator clearly is pointing lower at oversold levels. The line in the sand is 2686.25 which is the top of the lip of the gap formed the first trading day of the New Year. The danger of stepping into that gap is that we could fill it. That said, it is usual that a journey into a gap initially is a probe, thus you will have ample opportunity to exit the trade. The NASDAQ 100 1% by 3 box daily chart is not as negative as is the candlestick chart; it really doesn’t look bad and has no downtrend lines. The 60 minute 0.075% by 3 box chart has both upside and downside targets. The most concerning are the multiple downtrend lines.

Actually the Russell 2000 looks better than the NASDAQ 100 does. Is that because of AAPL? As you know AAPL has a heavy weighting in both the S&P 500 and the NASDAQ 100. It is not part of the Russell 2000 small cap index, which seems to have helped the Russell 2000. The Russell 2000 is inside the Ichimoku Clouds for the daily time-frame but is above the clouds for the weekly time-frame. We have returned to a trading range after a brief one-day break out on March 15. The 5-period exponential moving average is at 909.26. The top of the Bollinger Band is at 961.51 and the lower edge is seen at 895.31. The stochastic indicator, our own indicator and the RSI are all pointing higher indicating that it is likely that this market will rally. The Thomas DeMark Expert indicator continues to point lower at oversold levels. The Market Profile chart is not bell shaped but looks like a column…..strange. The high volume area is 916 where 7.4% of the volume was seen on the daily chart. The 1% by 3 box daily point and figure chart is positive with no downtrend lines. We do, however; have a sell-signal from our own indicator and the RSI. The 60 minute 0.1% by 3 box chart is not that positive and has downtrend lines in place. The SAR is short at this time.

Crude oil looks awful. There is no way that we can make the chart look positive. The next ledge of support is at 84.05 then 77.28. We are below the Ichimoku Clouds for all time-frames. The daily chart looks terrible, the weekly not so awful but certainly not pretty and the monthly well, that one looks like the market is coiling. The monthly charts also highlight the importance of 98-97. We saw the market challenge these levels and fail to trade above 97-98 four times. We could see a bounce in crude oil this week. The Friday session closed below its opening level and left a red candlestick on the chart. The low printed was higher than the four previous lows and the high was higher than the previous high. As we approach 89-90 there will be some resistance to overcome. The daily 1% by 3 box chart has only downtrend lines and no uptrend lines. There is nothing really positive here to be seen. The 60 minute 0.1% by 3 box chart has both internal uptrend and downtrend lines. We have a SAR long signal.

Gold won the award for lousy looking charts this past week. It was a close call with crude oil being the second worst looking chart. The formation see on the daily chart could be an upside-down bull flag which is bearish. We are not sure yet. Gold is below the Ichimoku Clouds for both the daily and weekly time-frames. If possible, the weekly chart looks worse than does the daily chart. Both the RSI and the stochastic indicator are positive. The 5-period exponential moving average is 1406.00. The top of the Bollinger Band is at 1706.76 and the lower edge is seen at 1345.25. The Bollinger Bands blew out from narrow to really wide. The 1% by 3 box point and figure chart is certainly not positive. The 60 minute 0.5% by 3 box chart does have some hope but lots of problems ahead.