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Much like a relay team where the baton is passed amongst its’ participants, where the ebb and flow of the race can witness multiple lead changes and a changing of the guard, so to does the marketplace. Whether rotation occurs via sector, industry, individual issues, or the indices themselves, it’s imperative for investors to monitor the action for subtle clues and to adjust accordingly. Is the recent behavior of the tape suggesting that the baton is in the process of being passed and that a role reversal is in the offering? While it may be a bit premature to determine if such occurrence is taking place at the moment, we direct your attention to the following charts, where it now appears as if the DJIA has assumed the leadership role from the tech laden NASDAQ. Below we show the P&F (point and figure) charts of the DJIA, COMP and S&P 500, which eliminates the insignificant daily price blips, otherwise known as “noise”, as well as time constraints and focuses primarily on price action. As one can determine from observation, the Dow has now gone “topside” and closed above its January 06’ highs, while both the COMP and S&P have yet to follow.
With the Industrials eclipsing the 11,000 box, the count now projects a price objective of 11,850. On the flip-side of the equation, should the DJIA pullback and violate the latest row of O’s at the 10,700 level (support), then one may be wise to re-evaluate. Nonetheless, the chart action is speaking and we await the verdict. Furthermore, while both the COMP and S&P 500 remain in uptrends, neither has breached their January highs thus far, evidenced by the charts below. In order for the COMP to advance in a meaningful way, the row of X’s at the 2330 level (resistance) would need to be exceeded, while conversely, the row of O’s at the 2240 box (short-term ) and perhaps more importantly the uptrend line at 2190 (intermediate-term), should provide support. Likewise, the S&P’s have yet to confirm the move in the Dow, as the 1300 box provides headwinds, while the 1240 level acts as a floor.
Nevertheless, the charts of all three major indices project upside counts. And despite our continued perception of a problematic backdrop overhanging the environment, Mr. Market marches to its own drummer and we must respect and heed the language of the marketplace. While there’s no assurance that the upside projections will be met, and are merely probabilities, both investors and traders may want to consider utilizing the identified support and resistance zones for further clarity, as the P&F charts tend to filter out the day-to-day “noise” roused by investor emotions. Will the Dow continue in its leadership role and print new all-time highs, thereby confirming the highs in the DJ Transports and alert investors to perhaps a new primary trend from a “Dow Theory” perspective, or will the baton be passed once again, as we have witnessed on numerous occasions during the past few years, where the masses have been treated to various divergences and non-confirmations? Stay tuned. In the meantime, we continue to deal with a “split” and deceptive tape, whereby discipline, selectivity and flexibility remain paramount.
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INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
