BigTrends.com
Weekly Market Outlook
December 13, 2003
NASDAQ COMMENTARY
If you're heavily invested in the Nasdaq, you're probably not completely thrilled
with the last couple of weeks, especially when comparing your stocks to NYSE stocks
(or other exchanges). The Nasdaq Composite is about 0.5% lower than it was at the end
of Thanksgiving week. That's certainly not the end of the world, but there were
better places to be. The S&P 500 is up 1.5% over that timeframe, and the Dow is up by
more than 2.6% since then (there is some overlap of these three indexes, however). So
what happened to Nasdaq stocks?
Basically, they lost their luster, and investors are now seeking other opportunities.
The reality is that while the Nasdaq is up by more than 40% for the year, the
underlying shares are not really 40% more valuable than they were at the end of last
year. Yes, the majority of these companies do see a light at the end of the tunnel,
and many have even come out of the tunnel and are turning profits again. But a 40%
increase? Not quite. There are still some very good Nasdaq-traded stocks to be sure,
but now that the tech-recovery frenzy is cooling off, valuations are becoming a
little more appropriate. It's not a bad thing at all. In fact, it's better for these
stocks to pull back a bit and see investors reassess them, than it is to repeat what
we saw in 1999.
This slowdown is fairly evident on our chart today. The Nasdaq had been traveling in
a pretty bullish channel coming off of March's lows, riding the support line (black,
bold) all the way up to new 52-week highs. But that support line buckled in
mid-November, and again just a few days ago. Now a new channel has been established
(black lines, dashed), which is obviously not as steep as the previous one. That's
ok. As we said above, the Nasdaq is cooling off, but it's not exactly dead in the
water.
The reason we say that buying interest has waned for the Nasdaq is partially evident
in the accumulation-distribution line (bottom of chart, red). This line pairs up
index movement with the volume of that movement. The bigger the change and the higher
the volume, the faster the line moves. As you can see, the accumulation-distribution
is now sloping lower, meaning there are a few more sellers than buyers. We can also
see in the falling MACD lines (middle chart) that the overall momentum of the
composite is weakening; each new MACD peak is lower than the last one, telling us
that each surge higher for the index isn't as strong as the last one.
There's no cause for panic yet; just don't be surprised if the next eight months for
the Nasdaq aren't as strong as the last eight months. Resistance still lies at 2000.
NASDAQ CHART - DAILY
S&P 500 COMMENTARY
While the Nasdaq Composite may only be marginally bullish, the S&P 500 chart looks
fantastic. In fact, the S&P 500 closed at a new 52-week high close on Friday
(1074.14) after hitting a new intra-day high of 1074.76 the same day. As you can see,
the index keeps pressing to new highs and the upper side of its bullish channel
(black, dashed) without even falling all the way back to the lower support line.
For the sake of comparison, we've added an accumulation-distribution line to the S&P
500 chart too (middle of chart, red). The theory that investors are shedding Nasdaq
stocks and tech names in favor of traditional names (and sector diversification) is
supported here too. The accumulation-distribution line for the S&P 500 is still
steadily rising, which in turn means there's plenty of buying volume to sustain this
trend.
One of the indicators we rarely look at is the triple-exponential line (or 'TRIX' for
short), but we're going study it today, if only to diversify our analysis tools.
(By 'triple exponential', we mean the TRIX line is triple smoothed. For a complete
explanation, go to this page: http://www.bigtrends.com/document.jsp?documentid=1271 )
The TRIX indicator is a curious tool, as it has characteristics of a momentum
indicator, as well as an oscillator. It is a momentum indicator in that it plots the
change in the closing price - a rising TRIX line means that prices are going higher.
It also is an oscillator in the sense that it is centered around a zero line, and can
signal that a market may be oversold or overbought, and due for a reversal. But the
real value of the TRIX line isn't even that complicated; it's a valuable tool to us
simply because it smoothes out an otherwise erratic trend. The market has been choppy
and quick to reverse, almost on a daily basis, which has wreaked havoc with plenty of
indicators. The TRIX line, however, has overcome the choppiness with its
triple-smoothed plot, and has been able to show us the bigger trend (no pun
intended). Take a look at the TRIX cross above zero back in August, which would have
been a great 'buy' signal. While other indicators have flashed several 'buys' and
'sells' since then, the TRIX line has moved steadily along, just floating sideways
above its center line. If you had just bought and held at the time of that crossover,
you'd be up 7.0%. The TRIX line is still above zero, and drifting higher. That's
bullish.
S&P 500 CHART - DAILY
S&P 500 COMMENTARY
While the Nasdaq Composite may only be marginally bullish, the S&P 500 chart looks
fantastic. In fact, the S&P 500 closed at a new 52-week high close on Friday
(1074.14) after hitting a new intra-day high of 1074.76 the same day. As you can see,
the index keeps pressing to new highs and the upper side of its bullish channel
(black, dashed) without even falling all the way back to the lower support line.
For the sake of comparison, we've added an accumulation-distribution line to the S&P
500 chart too (middle of chart, red). The theory that investors are shedding Nasdaq
stocks and tech names in favor of traditional names (and sector diversification) is
supported here too. The accumulation-distribution line for the S&P 500 is still
steadily rising, which in turn means there's plenty of buying volume to sustain this
trend.
One of the indicators we rarely look at is the triple-exponential line (or 'TRIX' for
short), but we're going study it today, if only to diversify our analysis tools.
(By 'triple exponential', we mean the TRIX line is triple smoothed. For a complete
explanation, go to this page: http://www.bigtrends.com/document.jsp?documentid=1271 )
The TRIX indicator is a curious tool, as it has characteristics of a momentum
indicator, as well as an oscillator. It is a momentum indicator in that it plots the
change in the closing price - a rising TRIX line means that prices are going higher.
It also is an oscillator in the sense that it is centered around a zero line, and can
signal that a market may be oversold or overbought, and due for a reversal. But the
real value of the TRIX line isn't even that complicated; it's a valuable tool to us
simply because it smoothes out an otherwise erratic trend. The market has been choppy
and quick to reverse, almost on a daily basis, which has wreaked havoc with plenty of
indicators. The TRIX line, however, has overcome the choppiness with its
triple-smoothed plot, and has been able to show us the bigger trend (no pun
intended). Take a look at the TRIX cross above zero back in August, which would have
been a great 'buy' signal. While other indicators have flashed several 'buys' and
'sells' since then, the TRIX line has moved steadily along, just floating sideways
above its center line. If you had just bought and held at the time of that crossover,
you'd be up 7.0%. The TRIX line is still above zero, and drifting higher. That's
bullish.
S&P 500 CHART - DAILY
BOTTOM LINE
There's not much to say other than the trend is continuing. Most indices have already
made or are on their way to new highs, and the rally is a broad one, touching almost
every sector. And this comes despite the fact that the University of Michigan
sentiment index came in under expectations, and that the trade deficit balance was
slightly worse than originally thought. To rally on good news is understandable, but
to rally on news that is mediocre-to-bad is just a sign that the buyers still want
control. With many of the psychological barriers breaking down, we now have stronger
support and weaker resistance ahead.
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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