BigTrends.com
Weekly Market Outlook
October 18, 2003
Friday we got stage one of a bearish reversal, with a close under the key 10 day EMA
and a close under Thursday's low. While that in itself is bad news for stocks, we
still haven't gotten technical sell signals from other indicators. Monday will
ultimately determine whether or not we get those signals, but based on current
momentum, we're preparing for some declines
NASDAQ COMMENTARY
We danced around the 10 day EMA line for most of the session today, but it would
eventually fail as a support line and let us fall to the lows for the week. Perhaps
this in part due to option expiration - perhaps not. In either case, some major
technical damage was done. However, the majority of the technical sell signals have
not yet given the official sell signal.
One of the tools we're focusing on at this point is the stochastics chart, as it is
one of the better oversold/overbought indicators. The stochastic lines have
accurately indicated that we've been overbought (and due for a pullback) for several
days now. The question was 'when?'. For us, our official sell signal is a cross of
the two stochastic lines under the 80+ overbought threshold. As you can see in the
middle of our chart below, both of the stochastic lines are still above 80. While
it's tempting to go ahead and get bearish based on Friday's action, patience is
advised until we actually get the signal. That may not take too long, though.
We're also on the verge of a Chaikin line cross under the zero line, which is another
official sell signal. The Chaikin line is a volume-weighted momentum line. The
direction of the Chaikin line points in the same direction that the majority of the
trade volume is pointed, regardless of the actual change in the index. On our chart
you can see the falling Chaikin line (since October 7th) indicate that the sell-off
days have been on big volume, while the buying days have been on lower volume. The
bottom line is that there has been a shift from net buying to net selling over the
last couple of weeks, despite the rise in the Nasdaq's closing levels. Like before,
we've yet to actually get the official sell signal.
NASDAQ CHART
S&P 500 COMMENTARY
Today's cross under the 10 day EMA came two days after hitting the upper end of it's
channel - that resistance line is marked on the chart. The two chart occurrences
coupled together suggest a decline back into the lower end of that 1000/1060 range.
But like the Nasdaq, the S&P 500 has yet to give us all of the technical sell signals
we want to see before getting completely bearish.
All of the analysis that you read above for the Nasdaq Composite also applies to the
S&P 500; stocks have been overbought for a few days, but even with today's decline
we're still not sounding the alarm. When we get the bearish MACD crossover and/or the
stochastic line cross under 80, then we'll turn fully bearish in the market. These
two events may even occur on the same day.
What we really want to key in on in this space is the potential degree of decline. As
you can see on the chart, the S&P 500 has been in something of a slightly bullish
channel, so we may find support there when it's all said and done. Currently that
support line is at 1000, but it rises slightly everyday. Be sure to adjust
accordingly. Should we fall under that line, the next possible stopping point is
September's low of 990 (marked with a green line). If we fall under that line too (a
drop of 5.0%), then we're really in trouble. Hopefully it won't come to that.
The other dimension to our bearish expectation is time. We really don't expect this
decline, if it come to fruition, to last too terribly long. As we've been saying,
October is a pretty rough month, but we're halfway through the month already. We
still expect early November through the end of the year to be pretty strong. It's
likely that we'll hit these support levels mentioned above right around the same time
that the upturn begins - within a couple of weeks.
S&P 500 CHART
BOTTOM LINE:
On Friday we saw the second consecutive day of lower lows and lower highs, verifying
the shift from buying pressure to selling pressure for stocks. As expected, the 10
day EMA lines for all the major indices served as support levels - we ended the day
resting right on top of them. This makes Monday an important day, as falling and
closing under these lines is a technical sell signal. Monday is also the first day
back from option expiration, so any irregular pressure due to the exercising of
options will not be a factor, effectively letting the market move freely.
Our expectation is that the movement will be to the downside, following through with
the bearishness that crept up late last week. However, remember that this negative
forecast is not a long-term forecast. Rather, this is just a warning of a correction,
possibly in the range of 5% to 7% (depending on the index). After that correction of
the overbought condition, we're again going to think like bulls and take advantage of
the usual fourth quarter strength. This turn-around will probably be sometime around
early November.
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!
#forex4u - chat forex MIRC
O Clubeinvest.com informa que nenhuma da informação
aqui facultada deverá ser entendida como conselho ou recomendação
de qualquer tipo de transacção ou investimento.
