Weekly View of the Indexes

Aug 13, 2007: 9:56 AM CST

The last two weeks has been some of the most volatile trading in the last few years, but certainly not some of the worst times. The $VIX made fresh five year highs (“fear index”) recently as well.

While the daily charts of the major indexes appear fragmented and broken from a technical standpoint, the weekly charts show a contrasting picture – one of an “orderly” pullback into support which has happened two times previously in the last year.

Let’s view the indexes from the perspective of the weekly charts:

Dow Jones

The Dow is resting at support from the 20 period moving average. Last week, we saw a 450 point weekly swing in the Dow that ended only 100 points higher. It was a roller coaster ride through the week. There is a momentum divergence that has formed.

The Nasdaq

Although the Nasdaq broke its 20 period moving average, it has done so before and found support just above the rising 50 period average. It appears to have done so this week as well.

The S&P 500

The S&P weekly view is showing yet another ‘magical’ turning point at the 50 period moving average. The S&P chart is similar to the Dow, and we are seeing a similar momentum/price divergence.

The Russell 2000

The Russell 2000 is the weakest of the major American indexes (from a relative strength perspective), and has fallen over 120 points over the last three weeks. The negative momentum divergence has been developing since the beginning of 2007, and price has now violently resolved that divergence.

Quick Overview

From here, we should see price rally up over the next few weeks (or shorter time) to attempt a retest of previous price highs. This appears likely since the “Fed came to the rescue” in terms of injecting liquidity into the market.

The market doesn’t appear to be ‘out of the clear’ just yet, but perhaps from both a technical standpoint, and one of the ‘news,’ the balance may be shifting back to the buyers and calmer times – at least more calm than the last two weeks – may be returning to the market.

4 Comments

4 Responses to “Weekly View of the Indexes”

  1. Eddie Kwong Says:

    Corey:

    Here’s a relevant article on the VIX, just posted today at TradingMarkets.com by Larry Connors.

    You may find it interesting and worth mentioning to your readers:

    Title: Paris is Good; Goldman is Bad, Bad, Bad! Welcome to Bizarro World
    http://www.tradingmarkets.com/.site/stocks/commentary/editorial/-68144.cfm

    Best regards,
    Eddie

  2. Corey Rosenbloom Says:

    Thank you, Eddie.

    I will definitely check it out and may post the link publicly, but it is here for readers to view in the meantime. From the overview, it looks like a very promising article.

  3. Aaron Says:

    Being a mainly fundamentals investor I am not too much of a technical charts person, but I am surprised that you believe the market will test its highs again soon, that seems to be a contrarian view. Today’s market was very weak, closing at the lows, I wonder if we might see some more selling before we head back to those highs.

  4. Corey Rosenbloom Says:

    Aaron,

    I have been relatively bearish this market for some time now, yet price continued to make new highs, and did so at seemingly neckbreaking speed and so I had to surrender that there were forces behind the scenes (unknown fundamentals or reasons) why the market continued its climb, and articles pointed to ‘ease of money flow’ and mergers and acquisitions driving prices higher. That view was (and is) seriously challenged by the recent tightness of credit, but I figured that the market would make a news-based run thanks to the Federal Reserve injecting billions in liquidity into the market.

    From a technical purist standpoint, markets rarely go straight up and straight down. Before rolling over into a downtrend, price often rallies up to retest its highs as ‘late bulls’ enter but can’t push price higher, which results in the classic “Double Top” pattern before entering a downtrend. I’m with you regarding the ominous signs from a fundamental standpoint, but price often undergoes relatively predictable patterns than have been observed through the years, and these are no more than the collective results of buyers and sellers as new perceptions form and old perceptions are difficultly surrendered.

    The market almost tested the highs, with the Dow falling 250 points shy and the Nasdaq 70 points shy & S&P about 50 points. While this retest didn’t fit the wave structure, it may have been the ‘retest’ that the charts often show which is known as the “last dying breaths” of the buyers.

    Time will tell. Thank you for the comment.