Down the Up Staircase

Two weeks ago the Dow was touching 12,000 for the first time ever. S&Ps were testing the less romantic 1372. And I was responding to Toddo's The Top Ten Trading Commandments with an Eleventh Trading Commandment.

That morning's open had gapped up sharply to new highs and immediately began retracing the entire opening gain. Commandments aside, the upshot of the article dealt with the failure's meaning:

"...this market has been in start-and-stop mode for some time, resolving each consolidation higher because that's how the last one resolved. Now the big attraction we've been driving towards is in our rear-view mirror. Today's failed new high is just a taste of things to come, with bigger swings of shorter duration."

Markets ranged sideways for another two days, then broke out to new highs again until peaking four days later, last Thursday. Then came Friday's session-long decline, followed by lower lows Monday, Tuesday and Wednesday. All of which has brought us back under Dow 12,000 and SPX 1372.

Meanwhile, NDX didn't break out until last Thursday, when other indexes were ending a four-day run. Its "new high" wasn't even a "new" high, peaking under January's prior high, and under April's subsequent high. And although NDX firmed Monday and Tuesday while the Dow and S&Ps were printing lower lows, it participated mightily in Wednesday's market thrashing, falling nearly all the way back to the past two weeks' lows.



And that's a problem.

The rally needs NDX's participation. According to the MACD and RSI negative divergence at last week's high, that participation has been pledged elsewhere. The above chart depicts MACD and RSI making higher highs along with price, until the day that Dow 12,000 was gapped through at the open. But MACD was negative on last week's new price high, while RSI was back under prior highs. The setup's minimum resolution is to break under the interim low by at least as much margin as the prior high was exceeded. Wednesday's drop was substantial, but it wasn't enough.

The Eleventh Trading Commandment was "to reward yourself with more than profits - especially when there isn't one." Bounces come and go. After two weeks and with new highs under its belt, the market's net gain is nil. Thursday's market may provide another bounce ahead of Friday's Employment Situation report. "Do what you can to keep your attitude positive about the opportunities the market's new environment is going to offer," because the new environment has finally begun.