Breakout!?

Have we seen an upside breakout in US Indices to sustain a move to mid-2019?

Let’s do an analysis. Firstly, let’s take a look at the big four:

A quick squiz at the chart highlights a most important point: the DJIA has still to clear the Jan 2018 highs. In my version of Dow Theory, the DJIA’s performance suggests non-confirmation. (I have substituted the NASDAQ for the Dow Transport and have added the S&P and Russell 2000)

So, I place a checkmark on the bearish side of the ledger.

Turning to the three that have cleared the early 2018 highs…..

The S&P: 

Last night’s price action shows:

1. Confirmation of invalidating the possible 5-d (blue line) Complex Horizontal Terminal – bullish
2. Confirmed LCC (momentum Filter), WPC (time filter) and acceptance above the 5-d Maximum Extension – bullish
3. We have a confirmed LCC on the 18-d breakout.
4. The range of this 18-d Maximum Extension falls into the outlier territory – in stats terms, it exceeds greater than mean +2 stdev. For this reason, I am using the mean ME range. This comes in at 2902. We saw a possible acceptance bar last night. I say ‘possible’ because it’s range was on the light side. I’d have liked to have seen a range above 20 to below 28. So, I’ll be looking for another bullish-bar to form no later than next Tuesday to confirm ‘acceptance above the ME’.
5. For the 18-d WPC, we need to see nine (9) consecutive lows at or above the breakout point at 2872.8. We have three, six more needed.

Taking the above into consideration, the retest of the 5d Complex Horizontal Terminal range (blue swing highs and lows) should be revealing. I’d want to see a decline in range and volume into the retest range. If I see that, I’d be looking to be a buyer.

The NASDAQ shows a similar picture to the S&P. I’d use the same strategy.

The Russel 2000 shows less buying conviction.

On Tuesday, August 21 (red arrow), the Russel had an upside breakout on average range and volume (bullish). However, it has then had five days of upside movement on below-average range and average volume. This is bearish as it suggests that sellers are capping the upside.

I’d like to see a retest of the 5-d (blue line) structure before determining if the Russel is in a bullish position.

Summary: The jury is still out. But, we should see a resolution by next week.