Technical Picture - NASDAQ 200 Day MA

With today's weakness, the McClellan summations have gone flat. The NASDAQ continued to exhibit weakness relative to the S&P. The low of yesterday's hanging man candle in the NASDAQ was taken out today on increasing volume. This action in the NASDAQ is taken place at the 200 day MA as shown in the chart below. The market appears to be at a pivotal point.

VIX Impulse and Flag - SKF

Similar to yesterday, a gap up opening in the broad market was met with immediate selling. The difference today was that the volatility index (VIX) showed an implusive move up (flag pole) which took out the previous day's high and then formed a flag. The implications of decling and rising VIX have been discussed recently in comments.

The mid-day flag on the VIX correlated with flags in individual stocks and ETFs. SRS (inverse real estate ETF) was the %change leader on my WL. However, the mid-day "bull" flag (inverse to the market) in SRS was not clean. I found a much cleaner flag pattern on SKF (ultrashort financial ETF). The 15min charts below show the impulse and flags in VIX (left) and SKF (right). The flag in SKF setup on top of the 15min 20EMA. I partialed after three 15min bars and a trailing stop on the remainder was hit soon after.

Technical Picture - Gold Range Expansion

The broad market opened higher and immediately gave up ground. Much of the day was spent in consolidation mode. There was a noticeably divergence between the S&P (new high late in the day) and the NASDAQ (no new high late in the day). The VIX worked lower continuing to confirm the current trend. However, keep in mind that the market can and often does turn on a dime.

Gold continued its range expansion move following the breakout from the coil mentioned on Friday. The coil turned out to be the right shoulder of a small inverse H&S visible on the daily chart. However, low risk entries in individual gold stocks were tough to find today. ABX had an okay setup above the morning range high, but the risk to reward ratio based on the 62% extension of the 30min OR (a common target for me) was not favorably.

VIX "h" Pattern Update - Daily & Weekly

Even though the broad market had a narrow range consolidation day, the VIX volatility index declined today. Generally speaking, a decline in the VIX has bullish implications for the stock market. Below is an updated daily chart of the VIX showing the h-pattern that I mentioned previously and a horizontal support line at the base of the "h". Notice the VIX closed just below that horizontal support line today.

Markets are fractal in nature which means that similar patterns occur on multiple timeframes and often simultaneously on multiple timeframes. Here is a weekly chart of the VIX showing another (higher timeframe) h-pattern and the horizontal support line. Notice the horizontal support line on the weekly is being violated.

Bullish Day and Close - ABX

Bulls owned it today with a gap up opening and a strong close on higher volume in both the NASDAQ and S&P. The VIX is still holding longer term support in the 35 area.

The previously mentioned daily coil in gold combined with weakness in the US dollar led to an upside range expansion move in gold. Of the gold stocks on my WL, ABX appeared to be the relative strength leader. Following consolidation at the ORH, the 10th 15min candle took out the ORH and closed at its high. I partialed at the 62% extension of the OR and trailed a stop at the lows on the remainder.

Daily Range Contraction

The following charts are examples from a scan for range contraction on a daily timeframe. The range contraction ratio (RCratio) indicator is in the bottom sub-window of each chart. Low values for RCratio indicate more range contraction. Range contraction often leads to range expansion. The direction of range expansion coming out of a low volatility point is uncertainty. The first chart is the Ultrashort Real Estate Fund (SRS). Many of the bear market ETFs have a similar pattern.

The second chart is a gold related chart. See the Technical Picture post from Friday describing the coil (involving range contraction) in many gold stocks.

Technical Picture - Gold Coiled

Based on the mid-day reversal action yesterday and the maturity of this rally, I thought the market had the potential to sell off today. Instead we got low volume consolidation action. The failure to follow through to the downside (on a Friday) increases the chances that the market will continue working/grinding higher in the near term. When the market does not do what you expect, change your expectation.

The current trend is still up in the NASDAQ and S&P with both trading above their respective 20 SMAs, and the 20 SMAs are above the 50 SMAs. The McClellan summations are trending up. The VIX daily has an "h" patten that implies the current support level may give way. Gold is coiled up and ready for range expansion.

Looking through individual gold stocks, you will see several nice "h" patterns on the daily charts. Here are three such charts with the "h" marked on AEM. Notice these gold stocks are trading below the 20 SMA, and the 20 SMA has crossed below the 50 SMA.