Good morning. The market is still in a bullish mood although Tuesday was sending out divergent messages via the indicators. Tom in the trading room correctly pointed out that sometimes you need to put the indicators away, particularly when news trumps and Tuesday was “all about the pending news”. Monday was a very difficult day to read and I came to the conclusion that this Columbus day was a pseudo trading day with very light volume, a historic expectation based on the anniversary of a 1000 point day from last year, the first day of OPEX and the first day of earnings week. That cocktail made for a difficult day to read and trade.
Tuesday the traders returned but not the volume and the response was muted. The New Highs indicator turned bearish and the market was not excited as we turned in an NR7 day. Here is the current state of the New Highs.
You can see how on the close of Tuesday the yellow line on the New Highs took a turn down. Had the Intel news turned bad the market was ready to sell. Well the pause that refreshes was happy with the Intel news and 10,000 Dow was in the sights.
The Zig-Zag pattern on the new highs (Every other day making a high bar / low bar) makes for an interesting math problem. Since the 5 day simple moving average I am using simply replaces the 5th bar with the new bar our magic number (the number needed to keep the 5 day pointing up or down) will zig zag in the same pattern. Today we will be replacing that 400 new high bar set last Thursday so it is a very high challenge to keep the yellow line up and happy.
Zweig:
On the Zweig front I have had a problem with this current price thrust since day 3. It is not as clean or powerful as the previous thrusts marked out in yellow arrows on the chart below. The Red arrows point out the type of topping action that the Zweig makes when it is finishing up the thrust. Our topping action is beginning early. We have not made it into that overbought area yet above 60 and it will need to show some strength in here to get there.
So for the rest of the week we need to read the markets for any directional change. Right now we are pointing up and we have burst the Dow 10K level. Next is the SPx 1100 on the radars and the Dow 10K needs to start forming support. Today will be decisive as we see how close to the 400 new highs we get, do we follow through from yesterday trend day, does our Zweig point back down? When the bell rings at 4pm today we will know much more about the character of this market, in the meantime be careful, we are still in a dangerous mix of OPEX and earnings.
So the read is that while the price action looks very bullish and based on price this thrust from the recent pullback looks like the previous ones, the indicators are telling us that underneath there is reason to be concerned. The markets are making new price highs on lower Zweig values and our 52 week new highs are not capable of carrying momentum through from one day to the next. That is very interesting.
See you in the markets..
Marlin aka: RedlionTrader
