It was only a week ago (to the day) that we were bragging on how strong the Nasdaq
Composite was. Boy can things change quickly. By the following Friday the Nasdaq saw
a major selloff and closed at the low close for the week. It turned out to not be a
one day problem either - we saw similar selloffs Monday and Tuesday of this week.
Finally we're getting a break today, but even today's strength pales in comparison to
the selling pressure we've seen over the last four trading sessions. But will today's
buying be convincing enough to patch up the quickly-deflating Nasdaq? The answer will
depend on how much technical damage is done (and undone) by the end of this week.
For those who read Tuesday's TrendWatch, you know what we're thinking (click here if
you missed it: http://www.bigtrends.com/document.jsp?documentid=1460 ). The support
lines and the moving average lines that had acted as support over the last eight
months stopped acting as support this week. Since these are longer-term lines, we're
using a weekly chart today to clearly illustrate the problem. The 9-week (two month)
moving average line in red is struggling to hold the Nasdaq up. However, the 13-week
(three month) moving average line in blue really hasn't even been threatened yet. But
the chink in the armor is the breakdown of the long-term support line, in green. We
hadn't traded under it since April.....until now.
Were it just the breakdown of the support line, we wouldn't be highly worried yet.
But look at the MACD lines (adjusted for weekly charts). We just got a bearish
crossover - the first in months. Since this is based on the closing level, we may
'undo' this technical damage by the end of the week. But you can still see that the
general trend is shifting towards a negative one. But what's providing the tiniest
bit of hope is the stochastic lines. Both of the lines are still above 80, in
'overbought' territory. As you read in today's TrendWatch (click here if you missed
it: http://www.bigtrends.com/document.jsp?documentid=1461 ), this can actually be a
sign of strength. The signal would be a cross of the stochastic lines back under 80.
As you can see, we're not quite there yet.
So for the time being, the Nasdaq remains at a pivotal level. The intentions of
investors may not be clear until the end of this week.
NASDAQ CHART
S&P 500 COMMENTARY
We'll move back to a daily chart for the S&P 500. This chart doesn't look nearly as
bad as the Nasdaq's - at least not at first glance. The S&P 500 is still inside the
bullish channel, about eighteen points above the lower support line. So while we're
falling, and even though the 10 day EMA has crossed under the 20 day EMA line, the
situation isn't exactly earth-shattering yet.
The one subtle concern is the different slope between the top side of our bullish
channel (green lines), and the bottom side. The resistance line isn't as steep as the
support line, meaning we're making lower highs. Or to put it another way, each surge
higher isn't quite as big as the previous one. But on the other hand, we're still
making higher lows. The end result is a rising wedge, where the two lines are
actually converging into one another. Generally speaking, a rising wedge is
considered bullish, based on the assumption that the strength of the support line
will eventually push the index past the resistance line. However in our book, it
still may be a bit premature to make that call.
Instead, we're going to focus on the accumulation-distribution line. The buying
volume trend for the S&P 500 stocks has clearly favored the bulls over recent weeks,
but the accumulation-distribution lines can make trend lines of their own. This is
exactly what we're seeing for the S&P's accumulation-distribution line (lower portion
of chart below). Like the Nasdaq Composite, the S&P 500 accumulation-distribution
line is being held up by the longer-term support line. Being at the tipping point,
we'll know which direction it's headed next within a matter of days.
S&P 500 CHART
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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