The market is really testing a lot of traders this month. Most of the bullishness is being eroded as the technology traders keep getting pushed lower in many of the Nasdaq 100 names. Lots of the big leaders have wiped $100 off their stock price. As an example, Align (ALGN) is quickly down from $713 a month ago to $600. Last week it ripped $90 higher and this week it lost $90. That's hard if you are trying to buy a new trend starting, but it whips you in and out so quickly. More importantly, each high is a lower high. The higher lows looked good until today, as they were still holding the stock up. Looks real bearish if that uptrend is breaking.
We have all been bombarded with the news that Technology is roaring ahead, with names like AAPL pushing up.
The Technology sector still looks great. So many names have been pounded down, but the large weight of the mega-caps makes this very resilient.
With the Fed meeting over, the rally in the last 2 hours of the day was exceptional and the Nasdaq soared. This is an hourly chart showing the massive rally into the close, as the index soared 500 points in 2 hours.
So that leads us into a big dilemma. With such wide-ranging poor breadth data showing carnage inside the market like ALGN and the continual drumbeat of bear market expectations, the market keeps rallying. The bears can't seem to take control of the narrative. The Twitter feed was filled with tech investors getting pounded for the last couple of days. But what about seasonality? Not only are the forces of bull and bear at play, but what about seasonality? I don't use it a lot, but, for today, that might be a better piece of information.
My friend Jeff Hirsch at Stock Traders Almanac expects a rally for December to start right around now. With the significant reversal today, could this be the start of the mood-altering positive price action? I use a longer PPO on this 60-minute chart so it is not so whippy, but the higher low on the PPO and higher low on the price seems to be landing here. The next few hours of trading could break the 6-week downtrend in momentum shown by the PPO. I specifically like when the PPO trend changes (from down to up) for at least a strong rally, as the breaking of the trend line looks very bullish. The best hourly volume candle in months could also be a clue that the buyers are showing up for work here.
I don't want to get too bearish here anyway, as the momentum downtrend has been going on for 6 weeks. If the bears can't muster control after that, what will it take?
My Schnell Strength indicators turned up last week and, this week, they looked overly optimistic, with the market moving lower Monday and Tuesday. After Wednesday's 500-point Nasdaq rally, it is hard to argue that lower is the direction. A surge in volume and a surge in momentum are just the clues I like to see to kick off a good uptrend. It is exactly this sort of positive price action that we'll need to break out of the range. At this point, it is hard to bet against the rally with the way the chart is shaping up.
If you'd like more information on my Schnell Strength indicators, you can access that with a free trial at gregschnell.com/explore.
Greg Schnell, CMT, MFTA
Senior Technical Analyst, StockCharts.com
Author, Stock Charts For Dummies
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