Saturday, May 23, 2015

MTU Weekend Ed - Dow Theory Nonconfirmation (5/22/15 close)

The recent non-confirmation between the Dow and the Transports caught market participants’ attention. Other topping signs may also be developing, such as another dive in the VIX, negative price-indicator divergences, and a confluence of price-and-time resistance. However, a (near term) bullish case can still be made.

The decline since the 2014 high in Transports appears corrective and potentially a downward flat (Chart 1). Transports may have been pulling back in a fourth wave, correcting the advance since late 2012 (Chart 2).

At its recent high, the Nasdaq Composite is only 0.25% shy of its Y2K high (Chart 3). While the Y2K could serve as a long term resistance level, odds appear to favor continued upward probing of the Y2K high, which is about 25bp away.

In addition, the 1.618 fib-extension of the 2007/2009 crash is at 5443.5, which is less than 6.5% away. See Chart 3.

The Decennial Cycle and the Presidential Cycle (in particular) are not bearish for the rest of May. See Chart 4 and Chart 5.