July 21 Market Wrap — Bulls get another bullish opex week

Week's Market Stats

Friday's Market Stats

We have some mixed messages from the different indexes but that's usually the case. If they all agreed and we had a slam-dunk setup for a trade you can usually be safe betting the other way. We also had opex influence, which is typically bullish, and that might have been thwarting a setup for the bears. We'll know more after Monday's trading as to whether or not the setup for important highs on Thursday will become more apparent.

As a whole, this past week was actually kind of boring with relatively small weekly candles. The techs were the stronger indexes while the Dow pulled up the rear (along with the TRAN, which finished the week down -2.8%). The SOX (+0.3%) and BKX (-1.6%) were once again split and that fit the pattern of split indexes. Neither side can get aggressive when we have a fractured market, which is generally not a healthy market.

SPX gapped down on Friday but managed to work its way back up to near the flat line by the close. In so doing it drove the VIX to a new all-time closing low at 9.36. No fear there. The CNN Fear & Greed index is now showing extreme greed (it ticked lower on Friday to "just" greed) so the combination of an uber-low VIX and extreme bullish sentiment is not a healthy situation for the bulls. But the bulls are like the honey badger and they don't give a sh**.

The RUT leads off with a more bearish picture for next week but as I'll show on the Dow's chart, the bulls could have other ideas and hold the market up into August.

RUT daily chart

The RUT had an unusual spike up at Friday's open and I'm not sure if it was a real move or just a fat-finger trade but it was able to spike above 1450 and likely nailed more than a few stops. It immediately collapsed back down below the 2007-2008 trend line, leaving a failed breakout attempt and a sell signal. As I had shown at the end of the day on Friday, it then proceeded to break its short-term uptrend line from July 11th, adding to the likelihood that an important high is now in place. Short against 1450 is the recommended position and we'll see how a coming pullback/decline develops (assuming of course that we'll get one).

SPX daily chart

Not quite as obvious, SPX also ran into resistance on Thursday and then gapped down on Friday. Resistance in this case is a trend line along the highs from March-June, currently near Friday's close (highlighted in yellow on the daily chart below), and price projections near 2475 that are based on the wave pattern. If the rally is done we should see the decline kick into gear in the coming week. The challenge heading into the weekend was that the price pattern for the pullback did not yet show us clearer evidence that an important high is in place.

The pullback from Thursday morning's high is not an impulsive move and I could easily argue the bullish case for a further rally. The trend line along the highs from April-June is currently near 2492 and will be near 2500 by the end of the month. There is a price projection for two equal legs up from May 18th near 2509 (for the second a-b-c of a possible double zigzag wave count up from March 27th). This upside potential is the reason why it's important to stop out of short positions if SPX continues to rally above 2477.

INDU 60-min chart

I'll continue to use the Dow as the bullish example until it's proven not to be the case. The price action since the July 14th high could be viewed as the development of a sideways triangle, which ideally needs another up-down sequence to finish it in the next few days. Once complete it would be a setup for another rally, one which could take the Dow up above 21800. It's possible the price consolidation is a topping pattern, which we've seen at prior important tops, and a drop below the July 18th low at 21471 would negate the bullish pattern.

SPX MPTS daily chart

Looking at the MPTS chart below it looks like the July rally could be called the moon shot -- the rally from the full moon on July 9th could complete on the new moon on July 23rd. The pieces are in place for a high around this date but whether that was on Thursday or will be on Monday/Tuesday remains to be seen. And of course the bulls could thumb their noses at this and simply keep the market rallying.

Conclusion

We had a nice setup into a potentially important high Thursday morning but we do not have enough price evidence to give us a clearer indication that the rally is finished. Holding the market up for opex might have been the primary factor but that means the market should drop harder on Monday. Anything less than a stronger decline would support the idea that the bulls are not quite done yet. Pushing higher into the end of the week/month would then be the expectation.

We'll find out relatively quickly on Monday whether or not an important high is in place. In the meantime, have a good weekend.

Monday's pivot table