Friday, February 04, 2005
Technical Analysis: Bearish
As expected, an oversold rally has developed over the course of the week. However, the S&P has issued a near-term sell signal by carving out a 1-2-3 pullback on its daily chart. Furthermore, major indices issued Real Distribution Weeks in the first week of 2005 and an outside down month for Jan05 --- signalling that in the intermediate term, the market has more work to do on the downside before any meaningful rally can emerge.
The contention now that what we witnessed the past few days is just an oversold rally before the next leg down. Apart from swing chart analytics as explained above, various technical indicators based on market internals also support this view. For example, the put/call ratio has fallen, suggesting that complacency is once against seeping into the market. Volume on the NASDAQ continues to be dismal, and new highs have also slowed despite the three-day upturn. However, the oscillator will not become maximum overbought until the middle of next week, and as such we might yet see a continuation of the rally until then, minor pullbacks notwithstanding.
On the other hand, the market could well begin to congest in the current area (S&P 1184-1195) and frustrate both bulls and bears, putting some time on its side even as the agenda is for the next leg down to sweep the carpet from everyone's feet. One thing for certain is that my initial target of S&P 1250 is beginning to look almost impossible, at least for 1Q of 2005. Apparently the agenda for the market changed. And so must our outlook over the next 3-6 weeks; hence the prognosis as stated above.
As expected, an oversold rally has developed over the course of the week. However, the S&P has issued a near-term sell signal by carving out a 1-2-3 pullback on its daily chart. Furthermore, major indices issued Real Distribution Weeks in the first week of 2005 and an outside down month for Jan05 --- signalling that in the intermediate term, the market has more work to do on the downside before any meaningful rally can emerge.
The contention now that what we witnessed the past few days is just an oversold rally before the next leg down. Apart from swing chart analytics as explained above, various technical indicators based on market internals also support this view. For example, the put/call ratio has fallen, suggesting that complacency is once against seeping into the market. Volume on the NASDAQ continues to be dismal, and new highs have also slowed despite the three-day upturn. However, the oscillator will not become maximum overbought until the middle of next week, and as such we might yet see a continuation of the rally until then, minor pullbacks notwithstanding.
On the other hand, the market could well begin to congest in the current area (S&P 1184-1195) and frustrate both bulls and bears, putting some time on its side even as the agenda is for the next leg down to sweep the carpet from everyone's feet. One thing for certain is that my initial target of S&P 1250 is beginning to look almost impossible, at least for 1Q of 2005. Apparently the agenda for the market changed. And so must our outlook over the next 3-6 weeks; hence the prognosis as stated above.
