Non-Confirmations Dissipated

Well, we are here again: another signal day near market highs on an index. The index is the NYSE Composite this time. The same short term sell signal came up on the COB 21st October on the S&P.

However, there is a different set-up:

*The market has been in a trading range for 3 weeks rather than running up and then giving a reversal signal. This gives a reversal signal less predictive success.

* You may recall that recently Bob Prechter was pointing out some non-confirmations - some indices were failing to hit new highs at the same time as the broader market indices. Apart from the AMEX, all the major indices have hit new highs since Prechter's comment, so those non-confirmations have gone. The DJ Transports and Utilities indices appear to be breaking out to the upside.

* There is not a clear non-confirmation on the advancing - declining issues indicator (second graphic). So breadth is in line with price at the broad index level.

* The market is going up with less short term thrust on each up-leg. Volume confirms this.

*Yesterday's down day was on the biggest volume for a month on NYSE trading. Was that a clean-out cathartic day? Even on the big volume down day there were a lot more new highs than new lows on the various stock exchanges.


The probabilities have shifted to less negative scenarios by market action over the last week or so. In particular the break outs to new rally highs by various industry sub-groups allows for some market leadership. The postive seasonal bias may kick in this month, particularly after a positive November. Some hedge funds are still gunning to make their year, though others will be planning how to spend their performance fee bounty already. On balance a trading environment with a positive bias.


relevant link: 'December Effect' Bodes Well for Hedge Funds, Equities'

Non-Confirmations Multiply according to Prechter

Although I am not an Elliott Wave technician, they do have market influence. Hence awareness of leading practitioners is a useful background input. Robert Prechter is such a practictioner. Bob Prechter's "Elliott Wave Theorist" newsletter published the 23rd November notes that the DJIA has achieved a 50% retracement of the fall from the 2007 high to the 2009 low, and has done so in 50% of the time it took to fall.

The following is taken from the same publication:

"Non-confirmations continue to multiply, as no other significant market index – among the S&P, NASDAQ, Transports, Utilities and the broader Value Line indices – joined the Dow in making a new intraday high today.

This morning's high occurred 39 minutes into the session, immediately after an upside gap in the DJIA during the session (his italics), an extremely rare event…I am betting that it was an exhaustion gap, not a continuation (wave 3 of 3) gap.

After 8 months of rally and a 52% retracement, I believe I have seen enough to recommend that traders move to 200% short. Those who were "maximum leveraged" for the 2007-2009 decline and reinstated half their positions on the recommendation in the August 5^th issue may return to their full former holdings now."

Prechter's services can be found at http://www.elliottwave.com/

The NYSE cumulative advance/decline indicator is a measure of market breadth. It is giving a non-confirmation at the moment - the NYSE Composite hit a minor new high a week ago, but the advance/decline did not then or since. Non-confirmations are useful to give confidence for high conviction calls on the market. The evidence is building for a high confidence bear entry point.