STOCK MARKET ANALYSIS & COMMENTARY

It looks like the bulls have pulled things back nicely.

For the past two weeks, we've been looking for the major market indices to each provide us with two things:

a) Move above 20-day Moving Average

b) Positive centerline crossover on RSI

Over the past week, every single major market index has provided both of these signals.

As a result, the technical landscape has changed from one of caution to one of opportunity. A trader's bias now has to be cautiously bullish and with an outlook to picking the best turnaround candidates.

Many stocks are showing initial buy signals and several others are showing confirmed buy signals, as per their momentum indicators.

One glance at our Stock and Options Picks lists provides one with a good idea of just how many charts are showing bullish setups. In fact, it would not be an overstatement to say that this could just be a once-in-a-year-or-two opportunity to pick up bargains on stocks that are showing intermediate and, possibly, major trend bottoms.

All signals point to an impending rally; the only technical reason that one might have to doubt the distinct possibility that a significant bottom is in place is that trading volumes have been low over the past week.

However, it is important to take things in context. Trading volumes from the previous weeks were massive. It is easily arguable that the "smart money" bought into the weakness over that period and, hence, the large volumes.

Having laid out the case that there is a distinct possibility a bullish reversal has taken place, let's now take a close look at the charts...  

The weekly chart of the S&P-500...

The stunning reversal seen last week and the follow-through this week have meant that price has been able to stay above the lower (weekly) Bollinger Band, which is now actually rising. Quite a remarkable turn of events, considering that for a short while last week, it looked like that Band was starting to fall.

RSI is now back above its centerline and MACD is starting to turn around without even having reached its 0-line. 

For signs of a potential bull trap, one would want to keep an eye on weekly RSI, specifically whether it can stay above its centerline. As long as the sanctity of the 50-line is maintained, the major uptrend is safe.

The daily chart of the S&P-500...

The daily chart of SPX shows that the minor downtrend has now broken and the momentum indicators are showing confirmed signals that the near-term trend has turned. Price action seen since the lows does not allow us to call for a minor uptrend as yet, based on the fact that there hasn't been a higher low and a higher high, per se. (It has virtually been a vertical climb since the lows.)

With prices having moved above the 20dMA, the upper Bollinger Band is now the next target. Speaking of the Upper Band, that Band is now starting to rise and move out of the way of the rising trend.

The weekly chart of the Dow Jones Industrial Average...

Weekly RSI is no longer showing a negative centerline crossover on the Dow Jones Industrials. Prices have bounced off the rising major trendline and as long as that line remains intact, it should only be a matter of time before new all-time highs are in place.

Conversely, any breaking of that uptrend line will serve as a warning that the recent pullback was nothing more than an attempt to "reset" the momentum indicators for the next downwards leg in an intermediate downtrend. 

The daily chart of the Dow Jones Industrial Average...

The Dow hasn't broken its minor downtrend as yet, but aside from that all signs are that a bullish reversal is in place.

Having looked at the weekly charts of the two indices looked at so far, we'll only take a look at the daily charts of the other indices on the list. There isn't much to be gleaned from the weeklies of these indices that hasn't already been seen on SPX and INDU. 

The daily chart of the Nasdaq-100 index...

NDX is showing a broken minor downtrend line, a breaking of the 20dMA, a positive centerline crossover on RSI and a positive MA crossover on MACD. The Upper Bollinger Band - at 2000 - is the next target and it will be interesting to see if that Band starts to rise (it should) as price approaches it.

The daily chart of Nasdaq Composite...

Rather than sound like a broken record, let's just say that the COMP is showing all the same signs that the NDX is showing and its Upper Bollinger Band at 2615 should be the next target.

The daily chart of the Russell 2000 Small Caps...

The Russell-2000 was the first index to show signs of turning around. It lagged the other indices a little bit this week, but if it can convincingly break the minor resistance area between 795 and 800, a move to or better than last month's highs could occur. The action between late-July and the present looks like a double bottom on the minor trend; the target from that pattern lies in the area between 840 and 865.

The daily chart of Dow Jones Transports...

Last week, we saw a weekly chart of the Transports that highlighted the breaking of a cyclical trendline. It remains to be seen whether that move was a fakeout or indeed the first major warning sign that the recent selloff was only the first leg of a longer-term downtrend.

The daily chart of TRAN, seen above, shows a few signs of a potential bullish reversal. If/when RSI provides a positive centerline crossover, there will be confirmation that the downtrend is quite possibly over.

The daily chart of Dow Jones Utilities...

The Dow Utilities have technically been in a downtrend since May, courtesy of a bearish channel. MACD and RSI are now showing signs that the said channel could be broken over the coming weeks. 

The daily chart of the Volatility Index...

The stellar rebound that has been witnessed over the past 7 trading sessions has caused a precipitous fall in implied volatility. The VIX now sits at a more reasonable 20.0-21.0.

While the rebound in US stocks has been quite impressive, to say that it pales in comparison with what the Chinese markets have done - for the past two years - would even be an understatement.

Just take a look at this... 

The daily chart of the Shanghai Stock Exchange Composite...

A 400% gain in a major global market index, in a space of two years! Unbelievable. But... the faster they rise, the harder they fall. The only thing is, it'll take a smart (or extremely timely) trader to pick a top on this chart.

That's it for this edition of The Big Picture on stocks. Enjoy the rest of your weekend and have a great trading week!

Sincerely,

The Team at TheMarketMessenger.com