Tucker Report

Stock indexes regained the ground lost yesterday, with analysts attributing the gain to the earlier drop in oil futures. Oil futures did erase a big gain from the morning, but they were able to rally well off the lows to close almost unchanged. The rally of oil off the lows late in the oil session did little to dampen the enthusiasm for stocks. Analysts probably couldn’t explain the market today so it was just easier to attribute the price action to some other market. The very bearish failure from yesterday didn’t attract much selling, even near the open when oil futures were well up for the day. It is usually a bullish sign when the market ignore a very obvious bearish set-up. It will be interesting to see if the market can follow-through to the upside on Friday, or if we get back into the pattern of direction changes every other day. Trends and momentum remain up. Some momentum indicators started to roll over yesterday, but not convincingly and no where near from an overbought area. I was ready for a sell-off today, but it was clear from the open that this market wasn’t ready to go down. Maybe I’ve been too cautious and looking for any reason to get short. I’m still cautious and not convinced that this rally has much further to go without a re-test of the downside. I also don’t want to fight the uptrend. I wish I had more conviction one way or the other. With the failure to follow through on the downside of a bearish set-up, the logical path would be for the market to put in a good upleg here. But this market has a way lately of defying technical patterns. If this market is to make a clear break to the upside, there should be some decent volume to confirm the enthusiasm.

Stock indexes bounced off support a few days ago, with a nice upturn in the oversold momentum indicator. The previous chart of the S&P was a near perfect example. Today I show the Nasdaq/QQQQ, which has been a bit stronger, and wasn’t able to quite touch the slower moving average on the recent pullback. Volume did not expand on the upmove. Today the rally carried forward nicely in the first part of the day. It looked like a clear breakout on the QQQQ chart. The S&P was also testing the previous high, but didn’t quite have the strength to push to new recent highs. The rally started to stall in the upper range of the bar, and price started to rotate back and forth in a tight range. Then the rally started to fade and the indexes closed near the lows of the day, and the Nasdaq closed with a loss for the day. What is more significant that the modest net changes on a closing basis is the failure of the test of the recent highs. You can see on the QQQQ chart where the yellow line is drawn how price pushed up and then fell back under the yellow line, creating a bearish upthrust bar. This failure is also known as a “turtle soup” pattern according to Larry Connors and Linda Raschke. It is named after the famous Richard Dennis turtle system, which when it fails, which is most of the time, the turtles are in the soup. Volume also picked up a bit on this failure bar. The trend is still up, but this looks ominous. Momentum is starting to turn down with a possible bearish divergence. The low pivot of four days ago is a key level to hold if this uptrend is to continue.
The dollar has rallied, and gold has dropped, and many of the commodity bubbles look like they are deflating, except crude oil. This uptrend has lasted longer than I thought possible. Fortunately I respected the uptrend and have not even tried to short this market yet, even though I’ve been tempted. There seems little reason for this uptrend. There seems to be more oil around than can be used. It seems like speculation has set the price and that price is being accepted. Now that the dollar is showing signs of bottoming and other markets are deflating, it seems logical that crude should come down. But it seems to be going its own way. There is a downturn in momentum, and the current swing could be ending, and this swing is less than half the length in time than the last swing. But every time there is evidence of the trend turning down, price finds support on the moving average and then puts in another upleg. This will end when everyone things it never will.
One thing that might prolong this uptrend a bit longer is the small traders on the commitment of traders. The yellow line in the subgraph on the chart to the left is the net position of the non-reporting, or small traders. Anything under the cyan horizontal line shows a net short position. You can see that short position is increasing at the same time the net commercial shorts (blue line) are covering, and the large traders (red line) is slightly increasing their long positions. This data is from a week ago Tuesday, so it might have changed. The data is released every Friday, reflecting the data from the previous Tuesday. There is a new book by Steve Briese on the commitment of traders data. I put a link on the Tucker Report Amazon store in the technical analysis section. It should appear as the first book in that section. I haven’t put it in my books link yet as I haven’t read the book. It is supposed to be excellent. I have it on order and should be getting it soon and will report on it after I’ve read it. This data is quite useful, and it is free from the government. Yes, the government is here to help us trade.

My last few updates suggested a retest of the moving averages. Last Friday the S&P, as can be seen in the SPY eft chart on the left, the index fell right to the lower moving average line (the darker blue line) almost to the tick. Today (Monday) the low of the day held right on the lower moving average and the index rallied to close over the upper moving average line. The yellow lines indicate a potential bull-flag formation. Momentum went to under the oversold line and today turned up. The QQQQ/Nasdaq was a bit stronger today, and had less of a pullback, as it didn’t quite reach the lower moving average line. I point out again that these moving averages are the standard Ehler’s mesa adaptive moving average and no parameters have ever been changed to fit the indicator to the price data. I don’t believe that these, or any moving average have any special power to hold a price pullback. I could pick any moving average and there would be swing points somewhere that the moving average would seem to hold. It is easy to be fooled by randomness when trying to derive rules based on technical indicators. But I do take notice when price pulls back to these lines when the trend looks strong, and other indicators confirm as resumption of trend. There is still a noticeable lack of volume. I was hoping that the pullback would show shrinking volume and then on an expansion bar the volume would increase. The volume on the Nasdaq, at least on the etf, was noticeably less today than on the smaller range bar from last Friday. Even on the s&p etf the volume declined a bit today, even though the range expanded. Also, weekly momentum on the stock indexes is starting to roll over from the overbought area, at least using the oscillators that I use. Also on the S&P price has stalled right at the 50% retracement level from the Oct 07 high to the double bottom area in Jan and March 08. With daily trends, momentum up, and the successful test of the moving average there could easily be a test of the high from the first of May. If that high is penetrated on weak volume, this rally would be suspect. If volume picks up the other concerns could be alleviated. There are still many prior swing points overhead that should offer much resistance if this market does work higher, so if the uptrend continues it could be bumpy, which could be fine for short term swing traders.
The EuroCurrency finally has a new downtrend, at least according to the moving averages, and is now testing those averages. Momentum has quickly moved back to the overbought area as price approaches the blue moving average line. This is almost the inverse of the s&p example. Currency trends tend to persist much better and much more smoothly than stock index trend. Although this market has had a few false starts trying to reverse the powerful uptrend its had for a long time. I will wait for momentum to turn back down before shorting. It is tempting to place order right at areas viewed to be support or resistance, but these lines don’t have to hold. They are just one piece of the puzzle.

In my last update on the stock indexes seemed to have come into balance as can be seen in the volume distribution market profile graphic (see previous post). With the market having sluggishly risen on light volume and the rally looking like it was stalling I thought the path of least resistance coming out of balance would be to the downside, and that prices would re-test back into the moving average area. Then, of course, the very next day the indexes rallied sharply, bouncing right off the faster moving average. The indexes did try to sell off early in the session on Tuesday, but then decided to test the upside with a close sharply higher, but again with low volume, although a slight bit heavier than Monday. The value area was again overlapping, which makes the profile look a little less bullish than the higher close would indicate. Then today (Wednesday) the indexes opened slightly lower, then rallied, but couldn’t find any buying interest. In the case of the Nasdaq, price briefly explored over the recent highs, and found there was no business to be done up there, so the Nasdaq quickly retreated, leaving a selling tail. The S&P didn’t push to new highs as the Nasdaq did, but also left a selling tail. Both indexes rotated back and forth within the previous value area, until later in the session when the selling picked up and both indexes took out the lows of the previous three sessions before re-establishing some sort of balance near the close, at much lower prices. Volume picked up slightly on the drop today, but still on the light side compared to the volume earlier in the year. Now both indexes are back in the moving average area, in between the fast and slow lines, which are still in a bullish mode. Momentum is still down with some sign of bearish divergence. If the moving averages stay positive and hold prices, and hopefully volume declines into the pullback, a buy set-up could occur in the coming days. If volume picks up, and/or the moving averages don’t hold, then there could be a test of the pivot in mid-April. If that doesn’t hold, the bear goes back in the box.
The dollar resumed its rally. Crude made another upmove despite the dollar rally. Volume on the USO etf was unusually heavy. Maybe this could be a blow-off. The futures contract volume was heavy, but didn’t indicate an extreme. Momentum and trends are pointing straight up. The only thing I don’t see as so bullish are the fundamentals, despite the Goldman call of $200. They were correct on the $100 call, which seemed absurd when it was made, but now seems low. It’s amazing how analysts will make a correct call and then when that call is met they’ll make a much higher call. They’ll be wrong eventually. They’ll probably wish they had stuck with their original forecast when the speculation in crude ends.

Crude oil made a new all time high today. The chart to the left is the USO crude oil etf. You can see how nicely the price bounced off the uptrending moving average, and how each time the short term momentum (double stochastic) turned up from the oversold level price quickly moved higher. I’ve been thinking this market is in a bubble and that fundamentals don’t warrant the high price, but the technical indicators have a different idea. If I could stop thinking and just follow the charts I would be much better off. The recent rebound in the dollar did trigger sell-offs in many commodities, but the oil market reacted only slightly and is now making new highs. Volume still seems to decline on pullbacks and picks up a bit on the rallies, at least in the etf, which is more continuous that trying to track the futures that roll over every month. I’m glad my bearishness on this market didn’t encourage me to fight the trend and go short. I did mention that as long as the trend indicator (blue lines) remains positive that I will not try to pick a top and short this market (even though I want to).
The stock indexes sold off today. Volume and range declined. The trend remains up, and momentum tried to turn up on the big up day last Thursday, but has since turned back down from the overbought territory, with a slight divergence. The light volume on this rally has me thinking that a pullback to the moving averages is coming. The big upmove last Thursday made that seem less likely, but I still think the possibility is there.
If you look at the market profile of the day session of the Nasdaq/QQQ you see the volume distribution profiles of the last three days. Actually, the first day on the left is just the top part of the big up day last Thursday. I cut the bottom off to save room. You can see the value area (purple vertical line) was overlapping since the up day. There has been little progress by the market of raising value, and today value and price range was an inside day. There was a bulge on the profile today, showing the market not being able to move out of range, so there is agreement of price and value as the market just rotated back and forth today in a tight range. Balance like this usually doesn’t last long. Something will come along to upset the balance and a directional move will result. With momentum now back to the downside it looks like a downside break is possible with an objective back into the area of the moving averages. If volume does not pick up on a break and the moving averages hold, a lower risk buy area could occur. Of course the break-out could occur on the upside. I’d watch volume carefully if an upside breakout should occur, as a light volume breakout could be a fakeout.