Tucker Report

The weekend seems to get away from me, and for some reason I seem to find any excuse to not spend much time on my computer. I updated my commitment of trader files and since have tried to think of other things. But it is Sunday evening and I must try to get some perspective on the upcoming week. Regrading stock indexes, I’ve been cautious of this rally. I thought the gap up would be tested, which it was. I expected the test to fail, which it hasn’t so far. So I was half right. The low volume, and continuing low volume makes me wonder if this will still try for a retest of the lower end of the moving averages. Being in new recent high territory should be attracting move volume. Both the QQQQ and SPY did try to test to support at the three day pivot (the yellow dots on the chart) and so far that area in both indexes shut off selling and buyers came, with the S&P/SPY closing near the high of the range, just slightly above the open. The candle left looks almost like a hanging man, which would be somewhat bearish. I put little faith in the candle patterns. I really don’t know why I even use candles rather than bar charts. Just habit I suppose. The Nasdaq/QQQQ chart also held the three day pivot, with a slightly lower close and leaving a small upthrust bar from the previous day. I didn’t include the momentum oscillator, but is is overbought on both markets, but the newly upturned trend indicators are both nicely up, and overbought isn’t too much of a worry when the trend is young. I still would like to see a retracement back to the moving average lines on light volume, and then a re-test back up on heavier volume. That would strengthen the bull case for me. Until I see that, or some sign of conviction on the upside, I will remain cautiously bullish with my finger on the sell button.
Another potential problem on a longer term basis can be seen on the weekly chart. To the right you will see the weekly chart of the S&P500/SPY. The downtrend on the longer term is still intact, and the momentum indicator is now overbought. Price is testing the upper moving average line with momentum still uptrending, even though over-bought. Price could easily clear the upside, as it has started to do on the Nasdaq. If this market should fail here there could be a nasty impulse move to the downside. I’m not expecting that to happen. I’m just trying to look at both sides and try to be prepared for whatever happens. Again, it is just weighing the evidence and trying to figure out the odds. It is never 100% one way or the other.
The chart to the left is the daily Euro Currency (the very last bar to the right is the Sunday night session). You can see the impulse move up on the left hand side of the chart showed a nice, smooth, easy uptrend. Then after the retracement in the middle of the chart, right to the lower moving average I might add, the subsequent uptrend became quite choppy and tentative. Divergence set in right at the top and for the first time in several weeks the price has actually closed under the moving average. The moving average lines are starting to come together. Momentum is getting very short term over-sold. It appears that the dollar is finally making a turn-around. If these moving averages can turn down, then rallies could be good short opportunities. I would look for rallies back up to the moving average area, accompanied by overbought reading in a short term momentum indicator, such as the double stochastic shown here, or any number of other indicators. The double stochastic has the advantage of reaching a counter-trend overbought or oversold level very quickly, while other indicators such as regular stochastics, rsi, or cci can stay at one extreme for an extended period, especially when a trend is new.

Stocks indexes closed a bit higher today, although they giving back most of the gains in the after-hours session as I write this. In the last post written on Monday I was concerned about the gap up on fairly light volume. The chart on Monday was the QQQQ. Today I show the SPY with a similar situation. You can see the gap up last Friday on slightly higher volume, but with a lower close. On Monday the SPY rallied from the open, but was on shrinking volume. Yesterday there was gap fillage, and also was a slightly down day on slightly increasing volume. Today volume increase again, with a lower close than the open, with the etf down slightly for the day. The cash market was up a bit (and the net change at the top reflects the after hours price). The low of the day session re-tested the area of gap fillage. Momentum is overbought, and if this market rolls over and takes out the support at the area of the gap, there would also be a divergence in the momentum oscillators. This divergence would also be confirmed by volume, or I should say the recent high in price was unconfirmed by the lower volume. There could be some more work to be done on the downside. Of course with earnings coming out every day, if there are some surprises to the upside and the high is taken out, and if volume should increase, then the situation would look better for more upside. The four day decline would then look more like a bull-flag, and would be viewed a healthy pullback that found support at the closing of the gap. As usual, there are two sides to every scenario. I somewhat give the odds to the first scenario, that is a pullback to at least re-test the moving averages, and to pull back the momentum oscillators. The way this market flips back and forth quickly, it is best to be prepared to trade on either side.
The gold market bubble seems to be over for now. You can see on the chart to the right that the moving averages are clearly down. Price rallied back up to the moving average, momentum got overbought, and price came right back down. Note the huge divergence in the middle of the chart when prices went past $1000 and the momentum indicator turned down from a much lower level. At the high day CNBC was talking about little else but gold, and they had analyst after analyst talking about the next level would be $1200 or higher imminently. Now they’re saying the same thing about fertilizer stocks and oil and the falling dollar. I expect the crude and Euro chart to look like this soon. But I could be wrong. It’s just a hunch. The bubbles do pop eventually.

I haven’t had much to add the last few days so I took a break from updating. Prices have bounced nicely from the uptrending moving averages, and were signalled by an oversold double stochastic and a tail left on the candle. I had concerns about that set-up failing as prices fell below the averages with acceptance of value at those lower levels as defined by the volume distribution profile a pointed out a few posts back. That concern didn’t stop the market from a powerful rally, with a big gap up last Friday, and in the case of the Nasdaq/QQQQ, some decent follow-through today. But I do have some concerns at this point. I was hoping the rally would be accompanied by an increase in volume, but so far the volume has not picked up as one would expect with such a rally. Pushing up to calendar year highs with volume falling off is not a good sign for continuation. Momentum on a very short term basis is getting in the over-bought area, but still pointing up. A downturn in momentum with the light volume could be the start of some testing back into the gap area. If volume should increase if such a test should occur, that could be a negative sign. I’m starting to hear the crowd accepting that the low is in. I’m still uncomfortable about that double bottom. Price has come a long way from that area, but it is not impossible to revisit the lows.

Of more concern is the anemic advance decline line. It has been in a downtrend for some time, even as the market was making highs last October. It has made a series of lower lows and lower highs. The current rally has not created a new high yet in the Nasdaq advance/decline line. I drew a yellow horizontal line where one could occur if this rally continues. The S&P looks slightly better in this regard. I would like to see some pullback here in the stock indexes so volume and breadth can be reevaluated.
Gold still looks like the rally within the downtrend is rolling over. Oil is going ever higher. I suppose it is going to the moon like everyone says. I still expect a pop of the bubble. Trends in oil are sharply higher, obviously. There is some minor divergence setting up, but I won’t step in front of this strong a market until there are several clear divergences and the trend turns down, or at least weakens. Initial shake-outs will probably be met with more buying, until at some point it isn’t. Hopefully there will be technical clues to catch a good downmove.

The chart to the right is a weekly continuation chart of Rough Rice on the CBT. I don’t trade this market, but it’s just another example of the runaway, parabolic price moves many commodities are experiencing. There are some fundamentals causing part of this price move, but I have to think, like so many commodities, that the main driver is the lower dollar and the effort by Bernanke and Paulson to drive the dollar down to nothing, despite what they say about a strong dollar being in the best interest of the country. There are now food riot around the globe. There are angry truckers having to pay up for fuel. Etc. Etc. There is no shortage of oil. Corn prices are skyrocketing because of the hoax of ethanol. Nearly every commodity is being fueled higher by the dropping dollar and rampant speculation and huge inflows of cash by hedge funds. Many are hurt by all this activity triggered by an irresponsible fed and treasury secretary. They must know the damage they are causing in an effort to postpone a recession and save irresponsible real estate investors and mortgage lenders. The world shouldn’t have to pay for speculation that went bad, and it was so obvious that bubble was going to burst. Now we have many more bubbles that are hurting many more people.
But I digress. Back to the chart. This is a classic exponential blow-off. The indicator below is the Commitment of Traders values for last week. The blue line are the commercial interests, or smart money. They haven’t been so smart yet as they’ve been net short for this whole move. Anything below the cyan line is a net short position, and anything above is net long. The red line are the large traders such as hedge funds, and the yellow line is the dumb money, or small traders. You can see that the commercials have increased their net short position as the move has accelerated to the upside. They will likely be right eventually. A clue will be when the large traders start to exit with the red line going back down toward the zero line. This COT position is typical of most commodities that have been in a big run-away move.
The chart to the left of the S&P etf shows the big upbar from today, with a gap up above the two previous small range balance bars. Also the momentum indicator is oversold and has just turned up. The moving average lines are still positive through the pullback, as was the case with the Nasdaq shown yesterday. I was concerned in the post yesterday that a rally early today could fail as value was being built at lower prices, causing that tail on the candle of the QQQQ to be suspect. I also suggested that a move above the two previous bars, probably on earnings news or forecasts, could alleviate that concern. The night session yesterday indicated that the market was going back into the moving average area, but often those overnight moves get reversed early the next day. But today the indexes gapped up above that resistance, continued higher all day, and closed well over both moving averages. The bulk of the move happened early in the session, and in the latter half there was quite a bit of backing and filling. Volume is still quite light, especially for such a large range day. I still can’t rule out a test back down, but that looks less likely. I hope we don’t go back to swinging 200 or 300 points back and forth every other day. The pivot eight days back is an obvious objective to overcome. If that is the case we should see volume pick up. If volume dries up even more on such an attempt, that would be quite negative. We should not see the market test back down into the tail left yesterday, or that too would be a cause for concern for the bullish case.

Stock indexes edged a bit higher today, even with crude oil blasting off to new all time highs and other inflation worries in the news. The chart of the Nasdaq/QQQQ to the left shows a tail left on the candle today. I put a cyan circle around the tail. This implies price rejection as prices were trying to approach some support. I drew the yellow line at the minor swing point about 13 bars back, which was also a minor resistance area a week or two back from that point. The trend is still up, but barely so. Short term momentum is still oversold and pointing down, but will likely turn back to the upside tomorrow. This pullback has been a little too deep in relation to the moving averages, but holding above the support line is encouraging to the bull (baby bull) case. And the tail on that candle should be view as bullish, that is if the market can put in some upside and get back above at least the lower moving average, thus leaving that tail there all by itself.
One problem I see is the volume distribution. Looking at a candlestick chart only takes into account the open, high, low, and close. It doesn’t show where activity was occurring. The distribution profile bell curve of the day session Nasdaq futures is shown to the right. I cut off the profile from three days back, as that was a wide range day and would have taken up too much space, but the profile from Monday, in the middle, shows value (the purple vertical line) being driven lower, and value today (the profile on the right) being driven down a bit further today, although with value overlapping. The yellow dashes are the close of the day session today. What I want to point out is that the tail left on the day candle was not so much a rejection area when viewed on the profile. If the tail had been a line of single prints (each letter represents a half hour time period during the day) then a case could have been made that the market explored the lower areas and quickly rejected those lower prices. The fact that the market accepted those lower prices by most of the trading activity occurring in that tail leaves the possibility that those prices may still be revisited. The last two days being relatively small range bars with balanced profiles indicates a large range day will occur soon. Perhaps some bullish earnings news could cause this market to push up through the tops of these two bars, which could lessen the possibility of further tests back down. But unless that happens I will be monitoring closely for any signs of rally failure and a push back down. The evening session as I write this is much higher and back above the lower moving average, and if that holds through Wednesday momentum will turn up, and that candlestick tail will look like a good signal. But the bottom line is to proceed cautiously as this potential bull (baby bull) is still very fragile and could easily break down.