MARKET SELLS OFF ON RISING VOLUME -- TECHNICAL BOUNCE COULD BE ENDING
NASDAQ 100 DROPS ON HEAVIER VOLUME... Last evening I wrote about the lack of upside progress by the Nasdaq market and also the lack of upside volume, which has been a problem for the entire market. Things took a turn for the worse today. The Nasdaq 100 Shares (QQQQ) helped lead the market lower today -- and on rising volume. That continued the negative pattern of light volume on up days and heavier volume on down days. Until that pattern changes, there isn't much hope for a serious market rally. It's more likely that the recent low-volume bounce is ending. That's even more evident over on the big board.
Chart 1
S&P 500 MAY HAVE FAILED TEST OF 1163 RESISTANCE ... The S&P 500 once again failed to close above its January and March lows near 1163. The fact that today's downturn took place on heavier volume may even be hinting that the rally attempt is ending. The S&P also ended back under its 200-day moving average. Earlier this afternoon I wrote an analysis of the Russell 2000 Small Cap Index and made the case that the RUT (which met resistance at its 200-day line) appeared to be completing a bear flag. I'd like to examine that potentially bearish price pattern in the S&P 500 a little closer. I also made the case that the recent rebound might be nothing more than a Wave 4 rebound in a five-wave decline. That bearish read also required that the S&P not close over its late-March low at 1163. So far it hasn't. Let's take an intra-day look at the recent bounce.
Chart 2
A CLOSER LOOK AT THE S&P FLAG ... Chart 3 is a microscopic look at the rebound in the S&P 500 SPDR (SPY) since last Thursday (April 21). Each bar measures 15 minutes. A rising flag is a short-term pattern that interrupts a longer trend downtrend. A rising flag moves between two parallel trendlines -- and usually a light volume. The two lines on the SPY aren't exactly parallel, but close enough to qualify. [Serious chart readers might even call this a rising wedge which is also a bearish pattern]. There are two key elements to watch closely. The SPY has fallen to the lower trendline. It's also doing so on rising volume. If that support line is broken (and I think it will be) that would signal that the short-term rebound has probably ended.
Chart 3
THE DOW BOUNCE MAY ALSO BE OVER ... The hourly price bars in Chart 4 paint a similar picture for the Dow Industrials having completed what appears to be a rising flag or wedge -- both of which are negative patterns. The Dow ended the day testing the lower support line. A decisive violation of that lower line would suggest that the recent rebound has run its course. The hourly MACD lines (which turned up early last week) are also turning back down. The daily bars in Chart 5 show that the recent Dow bounce fell short of its 200-day average and its January and March lows. I suspect it will retest its recent low at 10,000 before too long.
Chart 4
Chart 5
