BigTrends.com
Weekly Market Outlook
December 20, 2003
NASDAQ COMMENTARY
Over the last few weeks, by failing to keep inching higher, the NASDAQ has worked its
way back into a 'range-trading mode'. That range has pretty much been between 1875
and 2000, and we'll have to expect more of the same choppiness we've already seen
until we make a clean break out of that box. And right now, there's no guarantee that
we'll break to the upside.
A zig-zag motion is just a pattern that charts make, in all types of markets. But as
long as the overall direction of the pattern is higher, then things are generally
bullish. This is pretty much what we've seen over the last few months - higher highs
and higher lows resulting in a bullish zig-zag chart. Although you can always expect
these occasional pullbacks (even in a bull market), the NASDAQ is starting to pull
back more than advance. Our specific concern is the trail of lower highs the
composite has made after hitting 2000 in early December. Since then we've hit a high
of 1979.78, and then an even lower high of 1963.28. This establishes a loose, and
unconfirmed, falling resistance line (dashed). Fortunately we still haven't seen
trades under December's low of 1887, nor under the bottom side of our range, at 1875.
But if we do happen to get under those levels over the next few days, then be
concerned.
The other concern continues to be the declining MACD lines, confirming that the
NASDAQ composite has at least lost its bullish momentum and may be rolling over. It's
already problematic that the MACD lines are pointed lower, but if both should fall
under the zero level, we'll get a confirming bear signal.
For the sake of continuity, we'll plot an accumulation-distribution line again this
week, although not much changed for the indocators since then. With the line pointed
lower we can still infer that there is more selling volume than buying volume. With
less and less buying interest, and more and more profit-taking, these NASDAQ stocks
are just not enticing investors the way they were a few months ago. Translation -
without any demand for these stocks, don't expect much price appreciation here. Take
a look at our special Dow Commentary for the other side of that story.
NASDAQ CHART - DAILY
S&P 500 COMMENTARY
Although Friday wasn't necessarily an outstanding day for the S&P 500, the behavior
of the index is still relatively bullish, for a couple of reasons. First, following
the 1.1% gain we saw on Thursday is a tough act to follow. Big jumps like that often
encourage a lot of profit-taking, driving the index back down again. For the most
part on Friday, though, the SPX held onto its previous gains, and even made a new
52-week intra-day high of 1091.06. That's not exactly a sign of weakness. Second, the
resistance line we finally broke through on Thursday wasn't even a factor on Friday,
as we never even saw the index trade under it. This is an encouraging sign the
Thursday's surge and the week's gain of 1.3% will 'stick'.
The ultimate test will be on Monday, when we see if investors will still have the
temperament to keep buying. The week of Christmas is generally bullish, and we
certainly have some good momentum now, so we do remain bullish on this broad-based
index.
S&P 500 CHART - DAILY
DOW INDUSTRIALS COMMENTARY
What can be said about the Dow Jones Industrial Average other than it's just amazing?
It was only last week we were wondering if we'd ever make it past 10,000, only to
blow right past it without hesitation this week. The Dow has now made four
consecutive higher closes (the only index to do so this week) and is still
accelerating. Friday we again made new highs, even closing above Thursday's high.
Just amazing.
We're bullish on the Dow for plenty of reasons, not the least of which is the strong
manufacturing numbers we got this week. Industrial production and capacity
utilization were up, and housing starts were a bit better than expected. All of this
points to growth in factory production, which by default means that the demand is
higher for the raw goods used to make these physical products.
So why do we interpret this as bullish for the Dow? Where the NASDAQ is considered
tech-heavy, there is a bias for manufacturers and basic materials companies among the
thirty Dow components. In other words, although our economy is now primarily a
service-based economy, the Dow Jones Average is a better indicator of the industrial
side of our economy. Industrial growth is picking up, and so too is the Dow.
The only caveat is this - big gains invite profit-taking, and we've see some major
gains for the Dow recently. Overall we remain bullish, but we're seeing hints that
the Dow is temporarily overbought, suggesting that the index could pull back a bit or
move sideways a little while as these stocks regroup form this week. Don't panic if
you do see some dropping, as it's very difficult to sustain the current rate of gain.
Instead, look to buy on the dips, in anticipation of a quick recovery and a
resumption of the bullish trend.
DOW INDUSTRIALS CHART - DAILY
DOW INDUSTRIALS COMMENTARY
What can be said about the Dow Jones Industrial Average other than it's just amazing?
It was only last week we were wondering if we'd ever make it past 10,000, only to
blow right past it without hesitation this week. The Dow has now made four
consecutive higher closes (the only index to do so this week) and is still
accelerating. Friday we again made new highs, even closing above Thursday's high.
Just amazing.
We're bullish on the Dow for plenty of reasons, not the least of which is the strong
manufacturing numbers we got this week. Industrial production and capacity
utilization were up, and housing starts were a bit better than expected. All of this
points to growth in factory production, which by default means that the demand is
higher for the raw goods used to make these physical products.
So why do we interpret this as bullish for the Dow? Where the NASDAQ is considered
tech-heavy, there is a bias for manufacturers and basic materials companies among the
thirty Dow components. In other words, although our economy is now primarily a
service-based economy, the Dow Jones Average is a better indicator of the industrial
side of our economy. Industrial growth is picking up, and so too is the Dow.
The only caveat is this - big gains invite profit-taking, and we've see some major
gains for the Dow recently. Overall we remain bullish, but we're seeing hints that
the Dow is temporarily overbought, suggesting that the index could pull back a bit or
move sideways a little while as these stocks regroup form this week. Don't panic if
you do see some dropping, as it's very difficult to sustain the current rate of gain.
Instead, look to buy on the dips, in anticipation of a quick recovery and a
resumption of the bullish trend.
DOW INDUSTRIALS CHART - DAILY
BOTTOM LINE
In general, the days surrounding Christmas and the last few days of the year are
bullish, and based on current momentum we don't expect things to be different this
time around. But for the reasons you read above, caution is advised - choose
individual stocks carefully. Some may be overvalued and due for a pullback, whereas
other may be actually falling instead of just 'dipping'.
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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