Right Triangle Still Looms Over Market

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Stocks rose Thursday as buyers looked forward to another non-decision by the Federal Reserve regarding an interest rate hike next week. However, even among those who thought the central bank would raise rates, there was a feeling that it was overdue and that stocks had already discounted an incremental move up.

Although volatility was high in the morning, the market settled down in the afternoon. Relatively light volume, a more restricted trading range due to the upcoming Fed meeting, and a low growth rate in China put a lid on buying, but sellers did not dominate either.

Lululemon Athletica inc. (LULU) fell 16.4% after issuing disappointing guidance. And Krispy Kreme Doughnuts (KKD) dropped 11.7% on an earnings and sales miss.

Health care and technology stocks dominated buyers’ attention. The iShares NASDAQ Biotechnology Index (ETF) (IBB) rose 1.9%, led by Gilead Sciences, Inc. (GILD), up 3.3%. The PHLX Semiconductor (SOX) gained 0.4% and is up 3% for the week. Apple Inc. (AAPL) led the technology sector, rising 2.2%.

Initial jobless claims fell by 6,000 to 275,000 in the week ended Sept. 5, meeting estimates. Export prices, excluding agriculture, fell 1.3% in August.

Crude oil rose 4% to $45.92 a barrel. U.S. oil output fell to an 11-month low in August, but some industry observers think the worst is over and oil is in the process of making a bottom.

Gold gained 0.7% at $1,109.50 an ounce. The U.S. dollar fell 0.4% versus a basket of currencies. The euro was up 0.7% against the greenback at $1.12810.

At Thursday’s close, the Dow Jones Industrial Average rose 77 points at 16,330, the S&P 500 gained 10 points at 1,952, the Nasdaq was up 40 points at 4,796, and the Russell 2000 gained 5 points at 1,153.

The NYSE Composite traded total volume of 3.6 billion shares, and the Nasdaq crossed 1.9 billion shares. On the Big Board, advancers led by a slight margin, but on the Nasdaq, advancers outpaced decliners by 1.4-to-1.

NYSE Composite Chart
Click to Enlarge

Chart Key

We’ve been focusing on triangles this week since they have been appearing on many of our charts. Note on the chart of the NYSE Composite that the right triangle (coil) retreated back into its formation Thursday just as it looked like it would break to the upside.

The breakdown from the 200-day moving average was from a descending triangle (often a signal of a market top) as it plunged from a triple-bottom and was preceded by a death cross. Breakaway gaps accompanied the plunge before the index consolidated within the current right triangle.

Conclusion

Despite the new MACD buy signal, the very broad NYSE Composite index has issued so many bearish warnings that they can’t be ignored.

It is worth repeating that the recent right triangle is called a “coil” because of its similarity to a tightly coiled spring. When it breaks from the formation, it will most likely break hard. However, the longer it takes to reach its apex, the less powerful the break will be.

A close below the October low would signal a new downtrend, but we won’t try to outguess the market. It is still remotely possible that the breakdown is part of an enormous bear trap, but I doubt it. See the previous Daily Market Outlook for a review of the Dow Theory and its current application.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/09/daily-market-outlook-right-triangle-still-looms-over-market/.

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