S&P500 Appears to Violate Major Long-term Trendline Support Seen on Log Chart
By
Rennie on Monday, October 6th, 2008 at 9:00 pm
TICKscore closed at -87 Monday, its lowest reading of the year. Cumulative
TICK settled at -142,000, keeping the 20-day moving average trending lower.
Breadth settled more than 11:1 in favor of declining issues as virtually every
big board stock closed lower. Volume associated with declining issues
accounted for 94% of total volume, the fourth 90%+ down volume session in the
past month. New 52-week lows came in just below the 2,000 mark, an
extraordinarily high reading that blows away the positive divergence mentioned
in Sunday’s column. Prior to today, the largest number of new 52-week lows on
record was just over 1,300.
Many of the same short-term bullish setups that were triggered last Monday are
once again in effect now (see my September 29th column for the track records).
The 14-day RSI for the Nasdaq100 closed in technically oversold territory,
triggering a 1-2 day buy. New 52-week lows exceeded 700, triggering a 3-day
buy. The NYSE McClellan Oscillator closed in oversold territory (<-200),
triggering a 3-day buy.
For a longer-term perspective, I’d like to begin by reprinting a portion of my
July 24th column… “Most intermediate-term bullish setups will remain on the
board until at least early August, but from a ‘big picture’ perspective, keep
in mind that this does appear to be a bottoming process within the context of
a larger, and still unfolding decline. One that may persist for years. It’s
interesting to note that the very long-term trendline channel seen on this
logarithmic chart of the S&P may actually come into play again later this year
or early next year. It’s been a while since I’ve discussed this chart, but
briefly the trendline channel has contained the market’s entire long-term
uptrend since the 1930′s. That is, until 1995, when the market went into
bubble mode (earlier than many realize) by breaking above the upper channel.
We’ve been in this bubble mode ever since, with the S&P coming right down to
test the upper channel in 2002 but importantly not falling back into the
channel. Currently the upper channel lies in the SPX 1100 area, a level that
must hold from a ‘big picture’ perspective. Failure to hold that level would
suggest the S&P will then find resistance at that upper channel line, and
ultimately test the lower end of the trading range in the SPX 600 range.
That’s a doomsday scenario, but one that isn’t out of the realm of
possibility.”
Needless to say, the S&P sliced through that support line fairly clearly
Monday. This is a very long-term trendline, so some room should be allowed
before declaring a ‘clean break’. Indications continue to suggest the
potential for a rally short-term, but we’ll want to keep a close eye on the
SPX 1075 area, where the trendline currently rests. We could very well see a
move back over 1100 short-term, but the longer we go without a convincing move
back over the line, the better the chances that the trendline break is for
real. And as I noted back in July, traditional technical analysis would
suggest that once back in the trendline channel, the S&P would be on track to
test the lower end of that channel, about 50% below current levels.
I ended that July 24th column by saying… “One indicator I’ll be watching
closely if & when we eventually test the SPX 1100 area is the long-term last
hour chart. Recall this compares the market’s performance during the first &
last hour of every trading day, and is considered a long- term lead indicator
for stocks. From 2005 – 2007, this indicator plunged much the way it did in
2000, a major red flag from a big picture perspective. As I’ve noted numerous
times in the past, following such declines in the indicator, the real time
frame to watch out for is the retracement period when the Last Hour pushes
higher, recouping the gains from the earlier drop. Because this is such a lead
indicator, it’s usually at that time that the market experiences some of its
worst performance as smart money buys back into the ensuing weakness. Note how
this occurred throughout 2001-2003, with the market not bottoming out until
the Last Hour had retraced the entire 2000 selloff. It’s on its way higher
again currently, but has a long, long way to go before it reaches its old
highs. If the SPX eventually tests 1100 and the Last Hour is still nowhere
near its late ’04 top, which looks likely at this point, it would imply that
upper trendline channel will not hold.”
Monday’s session was a prime example of how to cause an upward spike in the
Last Hour. Recall that the indicator subtracts yesterday’s close from today’s
10:30am ET price, the result of which is then subtracted from the difference
of (today’s close – today’s 3pm price). The roughly 350-point drop Monday
morning followed by the similarly large rally in the afternoon propelled the
indicator up 700 points, to its highest level of the year. But it’s only a bit
higher than it was back in July and is still nowhere near its 2004 top,
meaning we’ll need to see a lot more sessions like Monday before the Last Hour
will be out of bearish territory. This continues to spell trouble for the
market’s long-term prospects, as does the stubbornly high NASDAQ/NYSE Volume
Ratio, absence of heavy program trading activity, negative up/down volume and
downward sloping cumulative TICKscore.
S&P500 Appears to Violate Major Long-term Trendline Support Seen on Log Chart
By Rennie on Monday, October 6th, 2008 at 9:00 pmTICKscore closed at -87 Monday, its lowest reading of the year. Cumulative
TICK settled at -142,000, keeping the 20-day moving average trending lower.
Breadth settled more than 11:1 in favor of declining issues as virtually every
big board stock closed lower. Volume associated with declining issues
accounted for 94% of total volume, the fourth 90%+ down volume session in the
past month. New 52-week lows came in just below the 2,000 mark, an
extraordinarily high reading that blows away the positive divergence mentioned
in Sunday’s column. Prior to today, the largest number of new 52-week lows on
record was just over 1,300.
Many of the same short-term bullish setups that were triggered last Monday are
once again in effect now (see my September 29th column for the track records).
The 14-day RSI for the Nasdaq100 closed in technically oversold territory,
triggering a 1-2 day buy. New 52-week lows exceeded 700, triggering a 3-day
buy. The NYSE McClellan Oscillator closed in oversold territory (<-200),
triggering a 3-day buy.
For a longer-term perspective, I’d like to begin by reprinting a portion of my
July 24th column… “Most intermediate-term bullish setups will remain on the
board until at least early August, but from a ‘big picture’ perspective, keep
in mind that this does appear to be a bottoming process within the context of
a larger, and still unfolding decline. One that may persist for years. It’s
interesting to note that the very long-term trendline channel seen on this
logarithmic chart of the S&P may actually come into play again later this year
or early next year. It’s been a while since I’ve discussed this chart, but
briefly the trendline channel has contained the market’s entire long-term
uptrend since the 1930′s. That is, until 1995, when the market went into
bubble mode (earlier than many realize) by breaking above the upper channel.
We’ve been in this bubble mode ever since, with the S&P coming right down to
test the upper channel in 2002 but importantly not falling back into the
channel. Currently the upper channel lies in the SPX 1100 area, a level that
must hold from a ‘big picture’ perspective. Failure to hold that level would
suggest the S&P will then find resistance at that upper channel line, and
ultimately test the lower end of the trading range in the SPX 600 range.
That’s a doomsday scenario, but one that isn’t out of the realm of
possibility.”
Needless to say, the S&P sliced through that support line fairly clearly
Monday. This is a very long-term trendline, so some room should be allowed
before declaring a ‘clean break’. Indications continue to suggest the
potential for a rally short-term, but we’ll want to keep a close eye on the
SPX 1075 area, where the trendline currently rests. We could very well see a
move back over 1100 short-term, but the longer we go without a convincing move
back over the line, the better the chances that the trendline break is for
real. And as I noted back in July, traditional technical analysis would
suggest that once back in the trendline channel, the S&P would be on track to
test the lower end of that channel, about 50% below current levels.
I ended that July 24th column by saying… “One indicator I’ll be watching
closely if & when we eventually test the SPX 1100 area is the long-term last
hour chart. Recall this compares the market’s performance during the first &
last hour of every trading day, and is considered a long- term lead indicator
for stocks. From 2005 – 2007, this indicator plunged much the way it did in
2000, a major red flag from a big picture perspective. As I’ve noted numerous
times in the past, following such declines in the indicator, the real time
frame to watch out for is the retracement period when the Last Hour pushes
higher, recouping the gains from the earlier drop. Because this is such a lead
indicator, it’s usually at that time that the market experiences some of its
worst performance as smart money buys back into the ensuing weakness. Note how
this occurred throughout 2001-2003, with the market not bottoming out until
the Last Hour had retraced the entire 2000 selloff. It’s on its way higher
again currently, but has a long, long way to go before it reaches its old
highs. If the SPX eventually tests 1100 and the Last Hour is still nowhere
near its late ’04 top, which looks likely at this point, it would imply that
upper trendline channel will not hold.”
Monday’s session was a prime example of how to cause an upward spike in the
Last Hour. Recall that the indicator subtracts yesterday’s close from today’s
10:30am ET price, the result of which is then subtracted from the difference
of (today’s close – today’s 3pm price). The roughly 350-point drop Monday
morning followed by the similarly large rally in the afternoon propelled the
indicator up 700 points, to its highest level of the year. But it’s only a bit
higher than it was back in July and is still nowhere near its 2004 top,
meaning we’ll need to see a lot more sessions like Monday before the Last Hour
will be out of bearish territory. This continues to spell trouble for the
market’s long-term prospects, as does the stubbornly high NASDAQ/NYSE Volume
Ratio, absence of heavy program trading activity, negative up/down volume and
downward sloping cumulative TICKscore.