We had a serious bull/bear battle going on this morning. It looked like the bulls had the upper hand after the oil report came out but it wasn’t to be. That post report spike turned out to be the peak for the day and the market slowly fell apart from there. It feels like things are different this time for most of the indices. The S&P, Russel 2000 and Dow failed to reach their old highs after the early June selloff. Making new highs after a brief selloff has been the market’s modus operandi since March. If we get more selling the June lows should be the proverbial line in the sand. If sellers can push the market to a lower low that will be a huge change for the market.
The S&P 500 appears to be headed for a retest of its 50-day moving average which happens to be just above that nice round number 1,500. I’m more concerned with the June lows around 1487.
The Nasdaq closed last Friday’s gap but stopped just shy of giving a stochastic sell signal. There’s a bearish OBV divergence on the Naz as well. Perhaps all that bearish volume action is finally taking a toll.
The small caps seem headed for a 50 DMA retest.
10 year interest rates got a much needed retracement this week but appear to be headed higher again.
Utilities are rolling over once again…
A few downgrades today due to 10-day moving averages being touched or broken.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
| Primary | Up | Up | Up |
| Intermediate | Up | Up | Up |
| Short-term | Up | Down(-) | Lat(-) |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
I think you’re on to something, Mike. no race to record and evaporation of LBOs following rise in bond yields. Doesn’t have a great feel to me.
stochastics for both naz & S&P seems similar, and yet you have sell signal for one not for the other..
in both cases, the line as well as signal line has turned over.
what am i missing?
The following are two separate sell rules but I like to see them both:
• When the Stochastic (either %K or %D) rallies above a specific value (80 is often used) and then falls below that value, a sell signal is given. When the Stochastic falls below a value (20 for example) and then rises above it, a buy signal is offered.
• A buy signal is given when %K crosses above %D and a sell signal is indicated when %K falls below %D.
I’ve seen many cases where you’ll get the fast line crossing the slow line but one or both doesn’t cross 80 (or 20 for a buy). That’s the case with the Nasdaq at the moment. We got a cross but the slower line is still above 80.
How about a look at XLE? The stochastics have also not quite generated a sell signal, but interesting to note how volume dried up going into the recent all-time highs, produced a few dojis, and ended with a huge pick-up in volume on the 2.9% drawdown… Seems like some kind of top is being put in?
The only time when stochastics are worth anything is when price action is trendless. In uptrends you get all sells and no buys, in down trends you get all buys and no sells. Exactly the opposite of what you want. Guideline: When price makes a new short term high or low, stop using them and wait for a trend indicator to give a signal.
In an uptrend, relying on crossovers to get you long after a sell, and worse yet, out after a short, is a perfect way of losing your butt in a bull move. Same thing in a downtrend, only the opposite set of bad decisions. All these cautions apply to RSI as well. Overall though, RSI is better than stochastic.