The indices flirted with significant upside and downside levels today, finishing the day nearly unchanged, with the Nasdaq losing less than one point and the Dow 38 points.
5 year weekly COMPX
Cyclically, the Dow and Nasdaq both appear to have just completed up-phases from the March lows. Note that on both indices, the March bottom was a higher low on the 10 week stochastic, and the top of the ensuing up-phase occurred at a higher high. While lower prices appear to be in the cards, the onus will be on the bears for the down-phase just commencing.
5 year weekly INDU
6 month daily COMPX
The daily candles paint a picture of bifurcated markets with the Dow vastly outperforming the Nasdaq on the correction off the March rally's high. The Dow is on buy signals, with the Nasdaq on sells.
6 month daily INDU
20 day 30 minute COMPX
On the 30 minute candles, we see both indices in the early stages of downphases within bear flag formations, projecting to lower lows.
20 day 30 minute INDU
What does the foregoing tell us? The bulk of the long-term (weekly timeframe) energy of the Spring rally has been expended, and the cycles are beginning a down-phase. Countertrend to that are the daily candles, which have paused in their ongoing downphases. The short term up-phase which caused that pause has terminated on the 30 minute candles, with the oscillators in that timeframe topped out and pointing south.
While the outlook appears weighted to the downside, note that significant bounces can occur within downphases without disturbing their course, such as we see on the daily candles. For me, the best trades occur when the short cycles max-out countertrend to their longer cycles before resuming their runs in gear with the longer trend.
On the economic front, the Mortgage Bankers Association (MBA) announced this morning that seasonally-adjusted demand for mortgage refinancings, the MBA refi index, declined 16.1% for the past week following the previous week's 2.4% drop. Demand for loans with which to buy homes, the Purchase index, fell 10%. The Application index fell 10.3% for the week. The average interest rate for a 30-year fixed rate mortgage fell to 6% from 6.37%. The drop in mortgage and refi activity for the week is indicating either the beginning of the end of the mortgage and credit bubble, a very significant development, or merely a lag between rates and mortgage/refi demand. While it's entirely possible that demand has been satisfied at and near current rates, I find the latter case the more likely scenario, and we'll see next Wednesday whether demand perks up for this current week.
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