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OEX-Leading the Market

 
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PostPosted: Sat Feb 25, 2006 11:29 am    Post subject: OEX-Leading the Market Reply with quote

OEX (S&P 100 large cap index) created a bullish MACD crossover two weeks ago before SPX (S&P 500) created its bullish MACD crossover. Moreover, SPX had its bullish crossover before QQQQ (Nasdaq 100), while Nasdaq lagged QQQQ. Consequently, the OEX MACD may be a leading indicator of market direction next week. Typically, large institutions invest in large cap stocks, which move the market, although large numbers of hedge funds and daytraders also move the market.

The first chart below is an OEX six-month daily chart. OEX has been forming a bearish complex head & shoulders pattern with the head at 588.71 made in Jan, large and small left shoulders in Nov and Dec, and large and small right shoulders in Jan and Feb. A rise above the head would indicate a further short-term rise, and perhaps a greater rise by QQQQ to catch-up. However, higher volume would be needed for OEX to break above 588.71 (volume has been mixed, over the past month, since it generally declined, while up days had slightly higher volume than down days). If OEX fails to rise above the head next week, that may indicate a market top and perhaps the start of a steep pullback. Major support levels are the 50-day MA and middle of daily Bollinger Band (which may work together to provide stronger support, although only short-term), and the 200-day MA, which OEX successfully tested twice after rising above that MA in Nov.

The second chart is an SPX one-year daily chart. SPX failed to break above the Jan high at 1,295, which is major resistance. Also, 1,300 is multi-year resistance (shown in last week's article "VIX 20-day MA"). Moreover, the five-year high at 1,316 is upper resistance, which is also the upper weekly Bollinger Band. Major support levels are 1,275, i.e. Dec high (from Oct rally) and 50-day MA; 1,254, i.e. Feb low and lower daily Bollinger Band; and 1,246, previous support and resistance, and a multi-year Fibonacci level. A break below 1,246 may accelerate selling. Below the SPX price chart are the daily VIX and SPX to VIX ratio with 200-day MAs. In Jul and Dec, VIX fell to around 10, while SPX to VIX rose above 120 (see circles), which represent a VIX multi-decade double-bottom and SPX to VIX all-time highs. Also, VIX's 200-day MA is currently at a multi-decade low, except for a brief period in early 1994, while SPX to VIX's 200-day MA is at an all-time high.

The new month starts Wed, which may give a bullish bias. It's uncertain if SPX will break above 1,295. However, intermediate-term technical indicators suggest SPX will be much lower within a month. Moreover, fundamental indicators are mixed or uncertain, perhaps until the next FOMC meeting in late Mar, which is typically bearish. OEX may lead the general market next week either by maintaining the bullish MACD crossover or creating a bearish MACD crossover first.



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