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Tale of Two Markets October 3, 2014

Posted by Tom in Thoughts.
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All of this week I’ve seen e-mails coming into my In Box from a professional technical analyst group that I belong to, and it appears (nearly) everyone of them has a different interpretation of this market.  That’s no surprise since this price structure / chart formation is not that easy to figure out.  Some have called it a Head and Shoulder pattern (Bearish), others a Continuation pattern (minor correction but Bullish) and others a broken Rising Wedge pattern (Bearish).  Regardless of the formation there is always a confirming indicator missing that goes against the classic text book formula for the pattern.

With Wyckoff Analysis I feel their pain.  The chart below labels a Distribution pattern (Bearish), but that very weak Buying Climax (labeled bc?) really doesn’t fit the pattern; the volume on that bar really was not high enough.  Then we see a Sign of Weakness (sow?) and that’s “text book”.  The next label Up Thrust After Distribution (utad?) has a great bar signature but the volume is very high.  Remember that the 3rd Friday is option expiration and that could mask the true trading volume on that day (UTAD’s typically are low volume bars).  Thursday was a break below the SOW level (that’s fine) and Friday an up day perhaps forming a LPSY (last point of supply).  IF that’s the case, a move around 4500, then a sell off, is the pattern (red arrow).  IF this truly is a Re-Accumulation structure (likely IMHO) then the green arrow is in order.

NASDAQ

The good news we won’t have to wait much longer since we’re close to the 4500 level right now.  Intriguing !  🙂   I’ve spotted in some reverse trend lines (in red) to help with the analysis cause, they coincide fairly well with the 4500 area as well.  I note the weak volume on Friday when compared to the sell off volume that we got in the early week (red circled area).

Biotech and some Pharmaceutical stocks are holding up as well as a few Tech stocks.  I’ll refer you to my Monthly Client Report under the newsletter tab above if you want more sector and overall market information.  Since prices are trending lower and market Sentiment has not turn around yet I’ll remain heavy in Cash and wait for a confirmation of trend in either direction.  Next week should be very interesting.

Have a good week and be watchful.              ………….  Tom  ……………

chart by MetaStock; used with permission

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