BigTrends.com
Price Headley's Weekly Market Outlook
November 1, 2003
NASDAQ COMMENTARY
While the last three days of last week were unimpressive for the Nasdaq, don't forget
that the composite gained 3.5% last week, and has managed to get back above the 10
day EMA line. And as the chart shows, the Nasdaq Composite is still entrenched in a
bullish channel.
Every time a chart makes an important gap, we mention it in the Weekly Market
Outlook, and Monday's bullish gap will be no exception. The most interesting part
about this jump from last Friday's high of 1866.43 and Monday's low of 1873.62 is
that it was basically the same gap we made the day before. The key difference is
that, this time, we made it going in the other direction. The result is an isolated
price bar from October 24th. These price bars that don't overlap with any of the
adjacent price bars are called 'islands', and often lead to an 'island reversal'. So
far, this bar is also turning out to be an island reversal, as it was this bar that
stopped the downturn, then started the upturn. So while we usually expect all gaps to
eventually get filled, based on the decisive bullishness from last week, this gap may
be one that doesn't get filled.
Although the trend is still bullish, the rate of that bullishness has really tapered
off. We ended up making a lower high on Friday, and failed to get to the high of
1966.87 from two weeks ago. As you'll read more about in the S&P 500 commentary
below, we are concerned that we haven't yet reclaimed previous highs. The Chaikin
line illustrates the same idea - the buying volume is still bullish since it's above
zero, but the strong decline of the line late last week says that there has been a
shift to heavier selling volume than buying volume. In fact, over the last two weeks
the Nasdaq has seen four distribution days but only two accumulation days. For more
on that, check out our market gauges below.
NASDAQ CHART
S&P 500 COMMENTARY
For those who read Friday's TrendWatch, you already have a pretty good idea of what
we're seeing for the S&P 500. But for those who didn't read it, in a nutshell, we're
concerned that we haven't been able to make a high that is higher than the high of
1053.79 from two weeks ago. Generally speaking, as long as you continue to make
higher highs and higher lows, then the overall trend is bullish, while failing to do
so dampens bullishness. Getting and staying above 1054 would constitute a 'higher
high', but as we said we haven't done it yet.
This is not an alarm bell, since the reality is that we may come back next week and
break through 1054 with ease. But you do need to be aware that this is the first
symptom of a market that's changing course. The second symptom of a reversing market
would be to make a lower low. A close under last week's low of 1018.32 would
constitute such a 'lower low'. If the lower low immediately follows the lower high,
then you should get concerned (but we'll discuss that when and if it happens).
The other side of the coin, as we discussed in the TrendWatch, is the slope of the
trend lines. The rate of gain for the S&P 500 is nowhere near the rate of gain that
we saw between March and June. As a result, the slope of the recent trend lines is
far less than the slope earlier in the year (in all fairness, the Nasdaq's trend
lines are still just as steep). This is a hint that the frenzy is slowing down. Be
sure to watch out for the point where the slope of the trend lines changes yet again,
which they would if we do indeed end up making a lower high and lower low.
Again, we stress that we're not trying to be alarmists - this is just an observation
of current chart patterns, which could be changed with even minor bullishness early
next week. But it is worth watching in case we do start to pull back and fall under
last week's lows. The other concern is simply that all trends do end, and we've hat
it pretty good now for about six months. Maybe the end of that trend is in the
making. With stochastics already indicating that stocks are overbought, and with the
recent MACD high slightly under the previous high, stocks are a little weaker than
most folks realize. Keep an eye out for shifting trend lines.
S&P 500 CHART
BOTTOM LINE:
We'll take this last opportunity to once again remind you that we're not turning
bearish - we're simply acknowledging that it's a possibility. Charts will ultimately
tell you whether or not markets are headed higher or lower, and as of right now, the
failure of charts to make new highs is just a concern. In the meantime, since the
trend is bullish, we have to assume that the picture will remain bullish until we
have a clear reason not to.
We've got a moderate week of economic announcements coming up. While the number of
them is relatively high, the impact of many of them is minimal. Some of the more
important ones are the ISM figures, the productivity percentage, and unemployment.
The unemployment should be of particular interest. Note that while the rest of the
economic indicators are improving, unemployment is the last thing to improve in an
economic rebound, so don't be too disappointed if we hold at 6.1%.
Have a great trading week ahead.
Price Headley, CFA, CMT, 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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