After a run up a doji candle signifies a stalemate between bulls and bears

It looks like we’ll have a battle over the month of May which seasonally tends to favor the bears, but we’ve got some bullish potential so don’t count them out.

On the monthly chart below the buy and sell signals are given by the monthly RSI trendlines.  The last signal given was a sell, occurring near trendline resistance.  When RSI has been overbought and falling in the last 20 years, significant declines have occurred.  This however is not a timing signal.  It is an overall “where is my place” in the overall market type of deal.  It’s saying stocks are expensive.

DJIA 20 Year Monthly Chart

DJIA 20 Year Monthly Chart

Zooming in on the same monthly chart…zoom in is a relative term because this is still an 8 year chart, we can see this months doji candle.  Price moved around this month but it closed approximately where it opened.  The body of the candle is very small.  This is a sign that bulls and bears are unsure and neither team is advancing.  It’s also worth noting that the volume over the last several months has completely dried up.  I compare this to my own personal situation and my trading volume is way down too.  I’m not really willing to buy nor to sell.  I am in a “wait and see” mode.  Look for volume to pick up on a strong move to help determine future direction.

DJIA 8 Year Monthly Chart

DJIA 8 Year Monthly Chart

The weekly chart continues to show the story of price riding right into the apex of the wedge.  There is a clear weekly RSI trendline that will likely serve as a key signal.  The most troublesome signal is the breakdown of the weekly MACD, our trend following indicator.  Once again I’ll link to the article “The Saga of the MACD” to show what’s happened when the trendlines have broken in the past.  This is the number 1 thing I’m worried about technically at the moment.  I’ve been worried for awhile but now it really looks like it’s trending south.

DJIA 12 Year Weekly Chart

DJIA 12 Year Weekly Chart

On the daily charts there’s a couple of rectangle trading zones.  The DJIA is making a third top and ALL EYES are waiting to see a breakout.  If so a move higher is likely in the cards.  I would be a little more optimistic if On Balance Volume were confirming the move higher but alas, it is not.  RSI would break higher and confirm the move, so at least there’s that piece of evidence.  Remember, we are looking for the weight of the evidence to make decisions.  The more the better.  MACD would also confirm higher, but as it stands it, RSI, Price and Stochastics are peaking at resistance.  I would give the edge to the bears on this one.  A price breakout should confirm all of these to move higher.

DJIA 8 Month Daily Chart

DJIA 8 Month Daily Chart

Moving on to the S&P 500, the chart below shows the current formation as price grinds sideways near channel support.  Weekly indicators are topped and falling.  Again, I’m worried about the MACD breaking south.  Bulls better put in a solid week or the weekly RSI trendline is going to give up the ghost.

S&P 6 Year Weekly Chart

S&P 6 Year Weekly Chart

A shorter term view of the same chart move easily shows the lower support level of the channel.  If it breaks, I’d hit the short button, at least to the blue level below.

S&P 3 Year Weekly Chart

S&P 3 Year Weekly Chart

Of course it’s always prudent to go long term to short term.  Here’s a nice short term 30 minute chart showing that price had actually broken to the upside of a descending trendline.  Price has come back down to retest, sliding a little bit along the way.  With Stochastics oversold and near RSI support, I expect some sideways to bullish activity over the next few hours.

S&P 1.5 Month 30 Minute Chart

S&P 1.5 Month 30 Minute Chart 

Switch gears to the formerly market leading tech stocks, the Nasdaq composite looks like it’s forming a very ominous Head and Shoulders Pattern, but wait, that seems a little too obvious.  I mean after all, it’s May and everyone’s looking for a top.  Everyone is probably thinking this is it, and that may be true.  Certainly I’d take a short trade if it were to break low.  However, look at the MACD and the Stochastics.  They are looking for a move north.  OBV is testing its highs while price has not yet.  This looks a bullish to me.

Nasdaq Composite Daily Chart

Nasdaq Composite Daily Chart

Looking at the larger stocks in the Nasdaq, or the Nasdaq 100, OBV has solidly broken to the upside.  This chart may be a better representation of the tech stocks because it doesn’t include a lot of the smaller volatile ones.

Nasdaq 100 Daily Chart

Nasdaq 100 Daily Chart

Small caps look similar to the Nasdaq charts above.  Keep an eye on the SAR in these charts.

Russel 2000 2 Year Daily Chart

Russel 2000 2 Year Daily Chart

A shorter term view of the same chart show the broadening wedge as well as the very key support level.

Russel 2000 1 Year Daily Chart

Russel 2000 1 Year Daily Chart

The 20 Year note continues grinding higher getting closer to our price target.  RSI and OBV have broken upward giving further confirmation of the move.

TLT Daily Chart

TLT Daily Chart

What is interesting about the rising trend of bonds is that equities are not exactly falling as you’d expect.  I’ve update the chart showing the relationship between bonds and equities below.

Relationship of Stocks and Bonds

Relationship of Stocks and Bonds

Checking in on our Bullish Percent indicator, it stands on the line of buy/sell.  Market participants just aren’t sure right now.

S&P Bullish Percent

S&P Bullish Percent 

The same uncertainty goes for the McClellan Oscillator.  We have gotten a lot of signals lately and they’ve been good, but the signals are whipsawing about and never giving a solid trending signal.  The market is stuck in a trading zone and that’s evident on this indicator.

McClellan Oscillator Signals Buy

McClellan Oscillator Signals Buy

Advance / Decline issues are at all time highs.

NY Advance Decline Issues

NY Advance Decline Issues

Over the last month energy, utilities and consumer staples have been the clear winners as financials and cyclicals have seen better times.

Sector Performance 30 Days

Sector Performance 30 Days

Summary:

  • Long term signals continue to show weakness
  • Sideways action on low volume showing markets are unsure of which way to go
  • Sell in May and go away seasonal bearishness may come into play
  • Head and shoulder patterns that appear to be forming are not confirmed by OBV
  • McClellan signals changing its mind a lot lately 
  • Bonds should continue towards price target…equities not reacting negatively to this

 

What do you fellow Stockineers think?

Do you agree with my assessment and can offer other supporting evidence?

Do you disagree with my assessment and can offer contrary evidence?

Does anyone want to offer opinions on underlying fundamentals?

Post your comments below so we can build this site together.

 

 

 

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