Stock Market Direction

The market is going nowhere fast. I talked about choppy trading in my last report, and it is now obvious that it can't get any more directionless then the last several days. Eventually the market will break out one way or the other, but I suspect this type of choppy action will continue at least until options expire this week. NASDAQ has been lagging during the last few days, while RUSSELL small cap index was leading. The important development is that bears have been unable to send indexes lower when they had a chance. Down volume on NYSE is running extremely low, which is a positive sign. It usually takes a few weeks for down volume to pick up before a meaningful top is reached. New highs - new lows indicator shows no bearish divergences, which is another positive sign for the market. I don't see a safe entry point for a market timing trade right now, but the majority of indicators are telling us that even if there is a decline, it will be shallow and short-lived. Meanwhile NASDAQ has corrected back down to a confluence of support levels.

NDX (NASDAQ 100) Daily:

The latest action looks like a test of a broken trend line and a lower Bollinger band. No wonder the market was able to find support Wednesday afternoon.

Trend is usually judged by counter-trend moves. The latest so-called sell off in OTC issues looks a lot like a low volume pause / consolidation type of action rather than the beginning of a down trend. I believe the bulls are still in control. The only warning sign is dangerously low volatility index levels (VIX and VXO). When implied volatility gets to 10-year low, it puts a ceiling above the market, which will be able to resist any significant rally attempt in the near-term. Therefore will have more of the same chop.

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