Thursday night I was expecting the Dow to go higher on Friday. While the Nasdaq and S&P did managed to eke out tiny gains, the Dow was down by an equally tiny fraction, dropping just 7 1/3 points to finish the week at 11,492. So I wasn't right, but I also wasn't too terribly wrong. Nonetheless, I think there's a lesson in this week's action and that is that we were able to breach and defend the 11,400 resistance point from the November highs (upper blue horizontal line). And as I've mentioned before, that level is also the cliff edge from back in 2008 right before the big October crash. The only fly in the ointment now is the shape of Friday's candle, which is a hanging man, coming on very high volume. However, it being options expiration at the end of the year, I can't really call that a top without confirmation Monday.
So where does that all leave us for the coming holiday-shortened week? Let's check out the weekly chart. Take a look at an entire year of the Dow in weekly bars:One thing that jumps out at me is that the Dow posted bigger gains this past week than last week and did it on much higher volume. As the great Dr. Brett Steenbarger always emphasized, volume is critical in chart interpretation.
Add to this that there are now just eight trading days left in 2010 and that historically, six of the last seven days of the year are positive for the markets (the very last trading day is typically a loser), I'm going to keep my long hat on this coming week and keep the green swing trend arrow in place. I believe the market still has the potential to climb at least a bit more before we call 2010 a wrap. But I'm not looking for any major moves. It's a short week, and I'm sure many of the pros have already decided to take the rest of the year off, with the Dow at its high of the year.
I note too that the VIX has now touched an important weekly support level at 15.23, its lowest point since mid-2007. The daily VIX indicators are mixed with the RSI calling it oversold but the stochastic executing a bearish (for the VIX) crossover, ie. bullish for stocks. And I particularly note that of the 19 other times in 2010 when the VIX stochastic looked like it does right now, the VIX went lower the next day. Check it out. I've highlighted the last three instances (blue vertical lines). Looks like the VIX could go even lower from here, doesn't it?
I was up 0.63% on Friday, a day on which the market as a whole did nothing, so that was nice. However, disappointing results early in the week left me with just a 0.13% gain on the week. Nonetheless, my trading account is now at a year-to-date high, and barring any catastrophes between now and New Year's I should end the year well ahead of my 2009 results (knock on my glass desktop). My current YTD return is 29.35%; the Dow is up just over 10%.