NYSE Composite Index Possibly Close to a Top

The next 3 trading days or roughly 20 trading hours are going to be interesting to observe.  My observation of the daily candlesticks of the last few days says that the market appears to be slowing in upward momentum with some signs of supply coming into the market or at the very least ‘pausing action’.  It is also true that we have still not seen any significant technical damage to the uptrend that would cause many to be much more confident that we have reached a trend change.

Yesterday’s shooting star candle on the daily bar on most indices failed to confirm today as a bearish sign.  I thought at some point today that a few indices might print an extremely bearish daily candlestick pattern called a ‘tri star doji’.  But at the end of the day this was not the case.  Still, sometimes ‘close enough’ candlestick patterns still give the same signals.  The last tri star doji pattern I remember seeing was in CAGC between March 10 and March 15, 2010.  It lead to a huge one day drop after the pattern was complete.  But the current pattern in most indices is far too messy to say with confidence that it is a tri star.

I will switch back to BOT short maybe tomorrow if there is enough potential for some type of down ward break.  The upside seems limited, however there is still some economic data coming out the rest of this week that might spike up the market a few more days.

I challenge any bull out there to tell me how a huge new advance is going to occur with the percent of stocks above the 50 day moving average looking so toppy. The 5 day moving average has crossed below the 10 day moving average similar to the April 2010 time frame. This chart is almost in the same stance as was the case near the April 2010 top.  The problem becomes whether not it is valid to make a comparison to the April 2010 top because the market was at a completely different stage at that point.  The one similarity I did notice between the rally that went up to the April 2010 top and the current rally since September 2010 is that the average volume on the SPY is roughly about the same, near 180 to 190 million shares.  In other words a very low volume light rally.

The summation index continues to be in ‘drifting mode’ and is only inches away from a bearish cross of the 5 EMA under the 10 EMA.  I noticed that the Volatility index today was quite strong despite lackluster action in the market.  Also the UUP US dollar ETF was strong today and is showing a nice weekly upside reversal and a weekly bullish stochastics crossover that is in a stance to break above the bottom 20 percentile line.

Just looking at the stance of the US dollar seems to suggest that the Fed next week will under deliver and cause the market to enter some serious downside.

nyse20101026

The weekly chart of the NYSE composite index a very broadly diversified market index shows that we recently printed to weekly doji candlesticks and are sitting right on the uptrend line.  Also notable is that the weekly MACD histogram is showing a bearish triple M possible sell signal which would be confirmed with a close under the horizontal red dotted line in the chart above.

The weekly stochastics are showing that we are in about the same stance as was the case during April 2010 with the weekly signal line of stochastic right now at 83.46 whereas in April 2010 right before the start of the big drop we were at 83.72 on the signal line.  When the weekly stochastic signal line in April 2010 busted below the 70 percentile line the very large two week drop began.  If the weekly stochastic again crosses below the 70 percentile line next week then one has to be at least open to the possibility for another 2 week drop in the market.  How ‘big’ that drop would be is of course open to debate.

The vertical solid green colored bar and vertical solid red colored bar at the right side of the chart shows that the NYSE next week must make a decision to either break under the supportive September trendline or to break under it.   If the market loves the Fed verdict and maybe gets a trillion of QE maybe we would blast higher and take the path of the solid green line.  If the Fed does not deliver enough, then it would seem we would take the red line path.

The NYSE seems to define the setup very clearly.  I can go with hints of what the US Dollar and the VIX is saying and tell you that we are going to bust down next week.  This seems to make sense and would be the typical ‘sell the news’ type situation.  But there is still part of me that is afraid the Fed will act like drunken sailors and deliver a half a trillion to a trillion and cause the market to blast higher in a drunken frenzy causing the US dollar to almost collapse.

But since the stock market is a game of odds, I have to say that the odds (based on my read of all the indicators combined) favor a break DOWN next week.

Posted in Long Term Charts
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7 comments on “NYSE Composite Index Possibly Close to a Top
  1. JR says:

    Tom, I could not agree with you more. But not a Bear Market. Just a substantial correction.
    With the most likely scenario, correction occurring after the election.
    The market has factored in a land slide for the Republicans. This is probably too optimistic and perhaps wishful thinking.
    If the Democrats maintain a majority in both houses, then that may just be the event that triggers a hard down!
    In the meantime, probably a lot of side wise action.

  2. bobo says:

    dont see it yet do you

  3. bobo says:

    what the hek is wrong with you moderation my commnts!?

    Who are you? Hu?

  4. Tom says:

    If we are about to enter a down phase, I would say that the down phase next week could potentially be much worse if we can manage to get some hard down days into the end of this week… crossing my fingers…

  5. Ed says:

    You guys took the words right out of my mouth. Been thinking all day about the Geithner strong dollar remarks, to the accusations of rigged electronic voting machines that might be programmed to vote for Democrats. There was an incident reported today where Harry Reid’s name was checked even though the voter voted Republican The SEIU is in charged of maintaining those machines and they are definitely biased for the Democrats. The dollar is beginning to make it’s move now possibly in anticipation by the smart money that QE2 will be less than expected.
    I am preparing to buy a load of cheap puts a few days before the election in case we get the double whammy on Nov 3

  6. Tom says:

    I had not thought of that regarding elections. Maybe there will be a massive fraud with the voting machines that will cause mass confusion. Seems an interesting possibility, but sort of doubt it would actually happen. I guess Moore’s Law applies.

  7. Ed says:

    Actually, even if the Repubs win both houses, it might have the same effect as The FED doing less QE2, since they will be seen as cutting spending thus doing less damage to the dollar. We could still find ourselves in a stock market crash

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