Believe it or not, the Nasdaq had a pretty good week despite some substantial losses
in the latter part of last week. The composite gained 1.12%, so with that kind of
progress, it's hard not to be bullish. But as we had pointed out last week, the rally
certainly looks tired. That became even more evident this week, so now we find
ourselves at a technical crossroads.
The 10 day exponential moving average (EMA) is the line in the sand. We found support
there a couple of days last week, and seemed unwilling to close under it on Friday,
despite an intra-day low slightly under it. However, we really didn't close above it
either - we closed right on it. Normally this wouldn't be of great concern, but
recent charts have shown us that the 10 day EMA is the line to watch. While which
side of the 10 day EMA we'll ultimately end up on is still undecided, we may start
getting clues as early as Monday.
While our price movement may be technically be bullish, there are some strong bearish
signs that do have us greatly concerned. The most pressing concern is the loss of
momentum. As of Friday, our MACD chart is indicating its second day of negative
momentum. In itself this has not been a primary sell signal of late, but coupled with
other signals, it is far from bullish.
Our other bearish concern is seen in the Chaikin oscillator. We've looked at this
indicator before, so we won't go into detail about its use. Just understand that in
any rally, you want to see trade volume increase with the trend. The Chaikin
oscillator does just that - it correlates price movement and trade volume. As of
Friday we technically got a sell signal from the Chaikin oscillator as it crossed
under zero. In other words, we're starting to see more volume on down days, and less
volume on up days. Since the tide has turned in favor of the sellers, we have good
reason to be worried. However, we'd prefer to get a couple of days of confirmation
from the Chaikin oscillator. We'll update this indicator in Wednesday's MidWeek
Update.
Support is at 1644 and 1575. Resistance is at 1685.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 100 (OEX) Commentary
The S&P 100 chart is quite similar to the Nasdaq chart - 10 day EMA is the line in
the sand. Staying above it is bullish while other indications are showing a weakening
bull trend. While we're parked right above the 10 day line, you'll also want to note
that we're hovering right above the psychologically important 500 level. As long as
we can stay above both of these, things are generally bullish (continued below).
Daily Chart of the S&P 100 (OEX)
We haven't quite lost momentum based on our MACD chart, although we're very near a
negative momentum divergence, With any weakness at all on Monday, we'll get that
crossunder. And as you're probably aware, we've been stochastically 'overbought' for
quite sometime. However, the first step to a sell signal is already in place. With
the %K (in green) already under the 80 level, the cross of the %D line (in red) under
80 would be the official exit signal. As you can imagine, the way an 'overbought'
market corrects itself is to drop in values.
Support for the OEX is at 500. Resistance is at 515.
The Bottom Line
All of the major indexes gained last week. A gain of any size is bullish, so we're
reluctantly going to continue in the direction of the trend and remain bullish. That
said, charts are certainly forming some pre-pullback patterns, such as lower lows and
lower highs, and the Nasdaq's close right at the 10 day EMA.
In the interest of complete understanding though, today's triple witching can and
does skew the whole week. The actual effect, however, may not actually present itself
in the markets until Monday when all the traders and investors return. Thus, Monday
is an important day for a couple of reasons. First, the indexes are either going to
move above or below the their 10 day EMA lines starting then. Second, a lot of the
trading activity that was stifled by Friday's option expiration will restart next
week.
Perhaps of greatest interest is a potential interest rate cut. The Federal Reserve
will be meeting Tuesday and Wednesday to decide whether or not to cut rates. This
will obviously have a major impact with both long and short-term consequences. At
this juncture, opinions are considerably mixed over whether or not we'll even get a
rat cut, and if we do, how large it will be. Caution is advised if you're going to
play the 'guess-the-rate' game.
Have a Great Trading Week Ahead!
Price Headley, CFA, President
With, James Brumley, Research Analyst
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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