Here is an excerpt from my Weekly Strategy Session, which I just published and sent out to members. Keep in mind, it is just a very small portion of the full Strategy Session–One part of a subsection, to be exact.
_______________________________________
2. Bending, But Not Breaking
First, let us return to our weekly S&P 500 Index chart analysis.
Price continues to hold the 10-week moving average (light blue line), an often overlooked reference point, as we have been observing the past few weekends. However, price also continues to “churn” on it–Churning in the sense that we have been seeing heavy sell volume since late-March with low buy volume (see the bottom of the chart below as evidence), while price is not making much progress to the upside. Churning often indicates that buyers are losing their grip on the uptrend.
So, while it is tough to turn bearish with a major index like the S&P refusing to breach its rising 10-week moving average (currently at 1555), as you can see we have sizable weekly price candles churning sideways. This conflicting evidence, alone, may be sufficient to compel swing traders to exude patience and wait for further improvement or deterioration before aggressively loading up their portfolios, either way. You might say that bulls are bending, but not yet breaking.
Also note that if price finally breaches its 10-week moving average, given the potential topping process for the entire month of April I would expect a swift move lower to the purple support trendline, which I have drawn dating back to the lows of the mid-November 2012 correction.
Similar comments apply to the Nasdaq Composite Index weekly chart. Here, many traders are expecting the Nasdaq to take over the leadership role going forward, especially with the semiconductors and mega cap Nasdaq components like Intel and Microsoft notably outperforming last week. In order for that to happen, though, bulls will almost assuredly need to break the Nasdaq up and out from its current 3,200-3,300 range.
Just as with the S&P 500 Index, above, again on the weekly timeframe, note that if bulls can follow-through on last week’s rally there is room to push higher yet before so much as touching the top of the upper Bollinger Band and becoming overbought.
Next, the 30-minute chart for the S&P 500 ETF gives us a good visual of what we are looking for next week. Earlier this month, the head and shoulders top presaged a sharp sell-off. However, the inverse head and shoulders bottom we looked at last weekend did indeed trigger to the upside last week. Price has now come full circle and closed this past week out right near the level of that prior topping pattern.
Please click here to continue reading.
Thanks for your thoughts.
Richard Russell (Dow Theory Letters newsletter writer, and 50+ years in the business) used to call this churning “bulls using up their ammunition”. Up a little, down a little, chasing trends that don’t last, but on the whole nothing to show for your efforts but losses.