(I’ve added a chart of $NDX at the bottom of the post.)
Each time the 5,3,3, Sto drops into oversold territory, you have to expect a bounce to follow. This setup has happened two previous times since the mid-September high and it has just happened again. The last two times, marked on the chart with a red vertical line, the markets ran all the way up to the previous high level in the 1465 area. I don’t think this bounce is going to take us that high, again, but I’ll let the market decide where it wants to go. Right now I think a bounce to 1440 or so will be about all we’re going to get, but that’s just my opinion. If the market wants to go higher then we should see a huge push to and then above the 1465 area and done on good volume. I don’t see it happening, but then I’ve already just about convinced myself that we’ve topped out for the year. Yeah, but then what do I know?
(Added Saturday, October 27th, 2012:
Q’s came within about 60cents of their 261% Fibonacci projection target on Friday. That final target is 62.75 and the fact that the Q’s spiked down to 63.35 at the open on Friday may be enough to have completed these projections. After all, this is voodoo not science. Per the 5,3,3 Sto, the Q’s are just as oversold as is $SPX so it makes sense that they should bounce out of current levels. That candle on the Q’s daily chart is a Hammer which is a reversal candle. The upper wick is a little longer than it ought to be but I’m going with Hammer until proven otherwise. Bottom line, Q’s came within a hare’s breath of completing their final Fib downward projection and are oversold so one just has to be looking for some kind of retrace from here, IMHO, of course.
Next, $SPX is just as oversold and, as I posted on Friday, while I am looking for a bounce out of current levels I don’t expect we’re going back to the 1460-1470 area. Taking the swing high of 1474.5 from September 14th and Friday’s swing low of 1403.2, Fibonacci retracements come in at:
23.5% =’s 1420.87
38.2% =’s 1430.49
50% =’s 1438.89
61.8% =’s 1447.3
78.6% =’s 1459.2
My thinking is that $SPX could bounce as high as 1440 so it could get up to 1447. If by some chance it should bounce and then close above 1459.2, then I’m wrong and there is a good chance that we’re off to the races and a new closing high is at hand. But there are a lot of people trapped at these higher levels and many will want to sell into any rally to either break even or reduce their losses so I don’t think we’re headed to new highs on this leg, especially since we have not had capitulation. Time will tell.)
Daily chart of $SPX showing 5,3,3 Sto with a kinda’ bullish cross today. Also note how the -DI line has peaked and is pointing down. Would have liked to have seen the RSI 14 drop below 30 to indicate a better chance at a real bottom, but you don’t always get what you want.
And don’t forget that we haven’t had a capitulation climax selling event yet, so that’s something to look forward to on down the line.
Click on the chart to see a larger version.
Chart courtesy of TradingView.com
GL next week.
This chart of $NDX shows something that doesn’t happen very often and that is that the Aroon Oscillator has dropped to -100. This also shows -100 on the Q’s but I just happened to be looking at the $NDX when I noticed this. As noted on the chart, back in June the AO only dropped to -92 but the RSI did drop to 30 and the ADX rose to 32 so the RSI and the ADX were prime for some kind of bounce at the time. Right now the signal isn’t as clear but it may be good enough. Things should be much clearer by the close of trading on Tuesday.
Click the chart to open it in a new window.