As you can see on the DP Scoreboards, this week has brought three new Price Momentum Oscillator (PMO) SELL signals to the Dow, SPX and today, OEX. The question is whether this spells DOOM for all.
"Doom" is likely too strong an adjective to describe what is being suggested on the charts of the four indexes covered in the DP Chart Gallery (remember: only members can view the NDX, OEX and Dow).
The newest signal on the OEX was barely a crossover and therefore is subject to whipsaw. Price has been traveling sideways with no acceleration or real deceleration, so the PMO is going to start to flatten. Don't discount this SELL signal. At this point price is safely within the trading channel. Overhead resistance is holding, but so is support. You can't get much more neutral. However, we're starting to see some deterioration. The rally of the last two days occurred on low volume and positive momentum is gone. Interestingly the OBV doesn't look that unhealthy. The OEX is the picture of "neutral" but showing some deterioration based on volume and the PMO.
The Dow is not looking neutral. Rather than traveling sideways, price has been in a declining trend channel. The good news is that support at previous highs is holding. Unlike the OEX, the OBV is configured negatively along with volume and the PMO. A reader recently emailed me to ask about this possibly being a flag. It is certainly a possibility, but given the bearishness of the indicators, it won't be easy for it to execute.
The SPX has been in a sideways trading range for weeks. Unlike the OEX, intraday lows have gone beyond support at the bottom of the range, but the close has been within making it a successful test of support. The PMO and volume are a problem for the SPX, but OBV is neutral unlike either the OEX or Dow.
The NDX is a different animal altogether. If you recall, the NDX suffered a serious correction and has had to play catch up. Well it's caught up and like others it has started to stall. However, the 5-EMA is pointed upward, the PMO is topping but still rising and the OBV line is very positive. The NDX could be the one to watch. If it can successfully break above resistance and stay there, it could be a leader for the rest. However, I'm not that optimistic based on the location of the PMO. It is now at the top of the normal range (-2 and +2) and curving over.
Conclusion: Clearly the Dow is showing the most weakness. The technology sector and consequently the NDX have enjoyed quite a rally catching up to the other indexes. How ever it hasn't been enough to lead change in the declining trend on the Dow or trading channels of the OEX and SPX. If we want to see a strong bull market rally, the Dow needs to improve and of course, all indexes need to breakout of their trading channels or declining trends. The new PMO SELL signals suggest this is going to be difficult and counter to current momentum.
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Technical Analysis is a windsock, not a crystal ball.
Happy Charting!
- Erin
