A Not So Slippery Slope

Tuesday, January 31, 2012
Fred Goodman
The indexes managed to crawl back into their rising wedges after an early decline.

AT A GLANCE: The slope of the Dow Rising Wedge is 33.5 points a day, so the index has to keep moving up to stay in the pattern. It's far from a sure thing, but the market may get some help from an S&P 500 Golden Cross that will happen today unless there is a big loss. The Trend Indicator is on course to move back into the Uptrend state tomorrow, which may provide further support. Let's not jump, but get ready to add 10% in QQQ.

NASDAQ 100 Potential Buys

S&P 100 Potential Buys

Dow Through Monday, January 30th

It sure looked like it was all over for the Dow when it fell 120 points below the border of its Rising Wedge right after the open. However, the market showed strength when it rallied to within 7 points of Friday's close by the end of the day. What's more, the Dow made a bullish Hammer pattern that would have been more encouraging if the Stochastic Indicator had been oversold, which it was not. The Stochastics are neutral at 65 and will have to fall below 40 to set up a buy signal based on a bullish candle. There is no question that we have been in a pullback for the last few days, but the market is performing very well and if there is a bullish candle today to confirm the Hammer we may be out of the woods.

NASDAQ Through Monday, January 30th

We've been hoping for a pullback to give us an opportunity to add a 10% position in QQQ, and we may have that opportunity sooner than we expected. The NASDAQ also formed a Rising Wedge (slope 10 points a day), but it started three weeks later than the Dow. When the Dow started its wedge, the NASDAQ was forming a simple rising channel that currently ends right between its 50- and 200-day moving averages. The moving averages are 5.7% below yesterday's close so a breakout from the Rising Wedge will already have been confirmed if the NASDAQ falls to its averages, but they represent solid support by themselves, and with the rising border of the channel close by it becomes even more likely that a decline will stop there.

The VIX Index gained 4.7% and the VIX Oscillator moved back above its sell signal trigger. As a consequence, it has turned neutral.

VIX Volatility Oscillator Through through Monday, January 30th

The Swing Indicators (SWI) continued to move towards zero, but unless the Short Trend Indicators (STI) have ended their buy signals by the time the SWIs get there, the indicators will remain on their existing buy signals for a while longer.

S&P 500 Swing Indicator through Monday, January 30th

Four positive indicators turned neutral giving us 2 negative, 14 neutral and 13 positive. The Summary Index rose to 17.90, but it will turn down and end this week at 17.30 if there are no further changes in the indicators. The SI will produce a regular sell signal by the end of next week unless there's a rally before then.

Technical Condition of the Market through Monday, January 30th >>Learn more

The S&P 500 200-day moving average (green line above) did not budge from 1257.20 but the S&P actually closed a point lower than it did 200 days ago, so the average fell a fraction of a point. For the average to move higher the index will have to close above 1314.52 today and above 1319.68 on Wednesday, but it will then get a boost for a couple of days before falling sharply in the next three weeks unless the S&P breaks out and makes a new high.

Meanwhile, the 50-day moving average (blue line above) gained 1.11 points to 1256.28 so there will be a Golden Cross between its 50- and 200-day averages today unless the S&P loses 31 points. If the market rallies today it is likely to rally sharply, because of the Golden Cross

The Trend Indicator (pink line below) could also help the market rally since it added another 0.04 points to 10.43 and is just a couple of days away from changing to the Uptrend state.

Summary Index of 29 Indicators and Trend Indicator Long Term History through Monday, January 30th >>Learn more

The S&P 500 14-day Relative Strength Indicator (RSI) is at 71.9% where it will remain for the rest of the week unless there is a sizable change in the index.

S&P 500 with the Relative Strength Indicator (RSI) through Monday, January 30th

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The S&P 500 Price/Volume Chart completed a bullish, clockwise false reversal on a lower close. The fact that it gave up points yesterday reduces the bullishness of the pattern, but it will redeem itself if volume picks up on a rally today.

S&P 500 Price/Volume Chart Volume = Total of Individual S&P Stocks through Monday, January 30th >>Learn more

The Average Signature of 2000 stocks fell fell to 673 from 756 and must drop to 345 in order to produce a buy signal to match that of the new method of analysis.

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Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. To send Fred your questions or comments, click here: Fred@MarketMonograph.com. E-mail sent to Fred may be edited for clarity and brevity and published on this web site, and may include your name unless you request anonymity or specify not for publication. The charts and commentary represent what Fred thinks about the market and what he is thinking of doing for his own account and for accounts he manages at the time of writing. Fred, his clients, or his family may have positions or may make trades in securities mentioned in these commentaries. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information. Copyright©2001-2012 Fred Goodman. All rights reserved. For information purposes only, offered as a periodical of general circulation; not to be deemed to be recommendations for buying or selling specific securities or to constitute personalized investment advice. Derived from sources believed to be reliable, but no warranty is made as to accuracy.