NASDAQ Breaks Trend Line, Dow Jones Still Above
The Emini closed down 0.25 points at 1,508.50 on Tuesday. We had very high volume today at 1.7 million contracts traded - the largest volume since the low of 14 March 2007. The Emini rallied twice in the morning towards 1,520. The first time was on climactic volume and then the second test was on lower volume. This set up the conditions for a decline with support eventually coming in at 1,505.
The chart above shows how we broke out of yesterday's consolidation triangle (1 white bar), reversed and ended back in the consolidation triangle (2 white bars). Looks like the Emini is going to try to break to the downside next.
The chart below shows the Dow's failed rally that closed on the lows.
And finally, the chart below shows the NASDAQ has now broken the rising trend line.
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NASDAQ vs Dow Jones Shows The Way
Emini-Watch.com its back after a short break. Strong bounce today confirming NASDAQ strength last week. The Emini closed up 15.25 points at 1,383.75 on Monday. Although the market fell all last week, we got signs of strength from the leading index on four of the five days. The question is now will the advance continue?
The Emini action today was all about large numbers. The open at 1,373.00 was 4.5 points above Friday's close. The range was well above average at 14 points. After the open the Emini shot ahead in the first 45 minutes then continued to grind higher all day to reach a high of 1,386.50 and eventually close a couple of points off the high at 1,383.75 - up 15.25 points.
The only average number was the total number of contracts traded at about 1 million. This more normal volume number is not a real worry. If it were excessively high it would show professionals exiting as the market rose. However, at this level it represents consistent participation.
NASDAQ strength against Dow
The Emini chart above shows Dow versus NASDAQ divergence patterns superimposed. On Monday and Tuesday of last week, the NASDAQ rose while the Dow fell. This pattern is shown with red dots on the Emini daily bars. Later in the week, on Thursday and Friday, the Dow and NASDAQ both fell, but the Dow fell more. This pattern is indicated on the histogram chart below the daily bars with red, negative bars.
Over the last few weeks the NASDAQ has lagged the Dow. This led to profit taking and some rebalancing. Followed by a down week with the NASDAQ showing greater strength than the Dow for a change.
Emini trend up but choppy
All Emini trend oscillators have now turned up:
- Trading Index (TRIN) oscillator
- My Secret #2 oscillator, based on the open and close prices
- My Secret #3 oscillator, based on Smart Money
A number of stock market and macro economic commentaries I read are turning very bearish on the US economy. We appear to be entering a period of diverging views - with the market continuing to make gains, while forecasters see trouble ahead. Although the trend appears to be intact and the Emini is within 10 points of the last high, anticipate some consolidation after today’s large range and choppy market conditions ahead. Like this article? Sign up for Free Email Updates or subscribe to the RSS Feed.
Low Volume Dow Jones and NASDAQ
Very low volume on the Dow and NASDAQ today. The Emini closed down 1.5 points at 1,383.25 on Monday. We got the bounce anticipated after Friday's action with the Emini closing 2 points above the open. However, is this correction going to continue and what is the NASDAQ telling us?
The Emini fell on Friday and both range and volume were above average. However, as noted after Friday's close, the volume and range were no so great as to indicate panic and broad based profit taking. In addition, the TRIN (as I measure it) was not very negative. All of this pointed to a bounce on Monday, particularly if the Emini opened weaker or with an Oops pattern (open below the previous day's low).
Well the Emini did open down 3.5 points at 1,381.25 but it wasn't a full-blown Oops pattern. It fell to 1,378.00, the low of the day, and then rallied a further 9 points to hit a high of 1,387.00. The Emini then dropped off sharply in the afternoon and eventually closed at 1,383.25. Range and volume were both below average at 9 points and 0.9 million contracts traded respectively.
NASDAQ beats Dow for once
Volume traded on both the Dow and NASDAQ was very low today. The Dow made a Doji candlestick pattern, with the open and close very close together - indicating market uncertainty. Whereas the NASDAQ rose quite strongly. We could be seeing some sector rotation, as the Dow takes a breather and the NASDAQ catches up.
The chart above shows divergences between the Dow and NASDAQ. Today the Dow futures fell, while the NASDAQ futures rose. This pattern is indicated by red dots on the chart above. Please note, I'm posting this chart a day late and we have a repeat divergence pattern on Tuesday. Normally the NASDAQ leads the Dow and so this pattern is considered bullish.
Trend indicators neutral
Trend indicators are now neutral. The Trading Index (TRIN) oscillator turned up today, which means we have 2 indicators long and 2 indicators short. The TRIN oscillator tends to be the most "erratic" trend indicator I use and so I'm not surprised to see it fluctuating so much over the last four days.
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Dow Jones and NASDAQ Divergence
Divergence signals today. The Emini closed up 4 points at 1,384.75 on Tuesday. We got Trading Index (TRIN) and Dow versus NASDAQ divergences today. Have you been tracking the NASDAQ or just been focused on the record-breaking DOW?
Divergence with low range and volume
The Emini opened down 2 points at 1,378.75 and then dipped during the morning to hit a low of 1,378.00. After consolidating the Emini rallied strongly during the last two hours of trade to hit a high of 1,385.50 and eventually close near the highs at 1,384.75. Both range and volume were below average at only 7.5 points and 900,000 contracts respectively.
We got two divergence signals today. The first was a Dow / NASDAQ divergence with the Dow closing up and the NASDAQ closing down. On the daily chart of the Emini above these divergences are shown with white dots. Red dots indicate the reverse and that the NASDAQ rose while the Dow fell. You can read more about these patterns and the histogram below the daily bars by checking out the Dow & NASDAQ topic on the right-hand side of this article.
The second divergence signal was a negative Trading Index (TRIN) reading with and up close in the Emini. This has also caused the Trading Index oscillator to turn down and signal a potential end to the short-term uptrend. Again, to read more about the Trading Index check out the category on the right-hand side of this article.
The rising uptrend has been so relentless over the last three weeks it is unlikely to end without a significant blow off move or market topping distribution. We also need another couple of the trend indicators to turn down too. Only one out of three at this stage.
Everybody’s waiting …
And don’t forget the Fed policy statement tomorrow - could cause some fun trading. Any trend line break on large volume closing below 1,375 might signal a reversal. Typically, however, I look for a “complete” move using the John Ehlers ‘Hilbert Sine Wave’ before such a trend reversal. This is equivalent to a final push or Elliott fifth wave, which we have yet to see.
Do a Google search for divergence and Dow or NASDAQ to find out more.
Wednesday 18 October 2006Dow Jones vs NASDAQ Divergence
Dow and NASDAQ divergence today. The Emini closed up 1.25 points at 1,373.00 on Wednesday. Lots happening today: index divergence, Oops pattern and very high Emini volume. Is the evidence of a market turn mounting?
Oops Emini …
The Emini gapped up on the open 5.25 points above yesterday's close and 2.5 points above yesterday’s high. The market quickly put in a high of 1,380.25 and then sold off strongly on very high volume before touching a low of 1,367.75 and eventually closing at 1,373.00. This is a classic Larry Williams Oops pattern, usually indicating that non-professionals have panicked at the open and allowed the professionals to take advantage and start selling.
The volume was particularly high at 1.45 million Emini contracts traded during the day. We haven't seen this much volume since the low finally put in on 19 July. Today's activity wasn’t all selling though, the market did close in the middle of today's range. The range wasn’t particularly high either and so off the lows there was quite a lot of buying in order to stop the freefall and push the market back up.
And Dow NASDAQ divergence
Perhaps most notably though was the divergence between the Dow and NASDAQ today. As you may remember, yesterday the NASDAQ gapped down and never filled this gap. Today the NASDAQ closed sharply down and near the lows. By contrast, the Dow actually closed up and so we have a classic Dow NASDAQ divergence.
I have talked about this in earlier posts - the NASDAQ usually leads the broader market. At market bottoms we usually see the NASDAQ pushing higher, or at least being less bearish. At market highs the smart money flows out of growth or risky stocks into the blue chips, and so the Dow is more bullish than the NASDAQ. That is exactly what we saw today. The white dot on the chart above shows days like this; the red dots show the reverse, when the NASDAQ advances and the Dow falls. They don't happen often, but when they do take note!
The Emini exhaustion signals start coming
Yesterday I mentioned that we still haven't seen any Emini exhaustion signs but was sure we wouldn't have to wait long. Well today we got two exhaustion signals:
- Larry Williams Oops pattern and
- Dow NASDAQ index divergence
The signs are starting to point to a downswing in the market with the trend indicators turning down and now some exhaustion signals. But I'd wait for a trend line break before entering the market.
Remember to use multiple non-correlated indicators and to take whatever swings the Emini market gives you. Do a Google search for Emini or index divergence to find more information.
Tuesday 26 September 2006Dow Jones Rises Faster Than NASDAQ
The Dow made a stronger up move than the NASDAQ today. The Emini closed up at 1,346.75 on Tuesday. This is the first sign of weakness we’ve seen in the last 10 days. Keep reading below to understand how larger moves in the Dow can be used to identify market turning points.
Large percentage moves in the Dow can indicate a change in market mood
The Dow is made up of 30 blue-chip stocks, whereas the NASDAQ is made up of 100 high-growth stocks. These indices normally move in sync, and because of the conservative nature of the Dow, it normally makes smaller percentage moves than the NASDAQ. However, occasionally the Dow makes a larger percentage move than the NASDAQ or moves in the opposite direction. Unusual moves like these can forewarn changes in market direction.
At market tops, sophisticated investors shift their focus from high-growth stocks and move their money into more conservative blue-chip stocks. Therefore, market tops can be shown by either the Dow rising and the NASDAQ falling or the Dow making a larger percentage up move than the NASDAQ. Conversely, at market bottoms smart investors shift their focus from blue-chip stocks to high-growth stocks. Therefore, market bottoms can be shown by either the Dow falling and the NASDAQ rising or the Dow making larger down moves.
Measure these changes in the Dow and NASDAQ in 2 ways
On the Emini chart above I've included two indicators that measure this relative Dow and NASDAQ market activity. The first indicator plots white and red dots on the daily bars when the Dow and NASDAQ move in opposite directions. White dots are bearish and red dots are bullish. This indicator does not fire off as frequently but it’s signals can be more accurate.
The second indicator plots below the daily bars and shows the difference in percentage move between the Dow and the NASDAQ, when the Dow moves by a larger percentage than the NASDAQ in the same direction. This indicator fires off more frequently and needs more interpretation. In particular, I take more notice of the larger percentage moves than the smaller ones.
In the chart above, this second indicator labeled DJIA NASDAQ Diverge shows that today the Dow rose by 0.36% more than the NASDAQ. This shows that investors are becoming more conservative and switching out of NASDAQ stocks and into the Dow. This is the first sign of weakness we've seen recently. (note: I use the Dow and NASDAQ futures in my calculations rather than the indices themselves)
This is an easy measure of market sentiment you can track yourself
Remember, don't use this pattern alone; combine it with other non-correlated market indicators to identify high probability market turning points.
Do a Google search for Dow NASDAQ divergence to find more information.
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