BigTrends.com
Weekly Market Outlook
December 27, 2003
NASDAQ COMMENTARY
We've finally started to see some signs of life from the NASDAQ Composite, although
it's still not an overly-convincing bullish chart. Today we'll explain the good and
the bad, and take a look at when we might see the index break out of its 1875/2000
range and start to move again.
What's bullish: Over the last five days the Composite has established some pretty
bullish trend lines (dark, dashed). These aren't exactly the lines you'd want to use
when making longer-term decisions, but they do indicate the type of recovery momentum
that has been established in the latter half of December. The result of these two
lines is the formation of a rising wedge, with the point of the wedge placed (not
surprisingly) right around 2000. So, between current momentum and a lack of
resistance between here and 2000, we don't think tacking on another 25 points to the
NASDAQ will be too hard. On top of that, the MACD lines are finally starting to
break-through their own falling resistance line. While one day's worth of
break-through isn't a screaming buy signal, it is at least a little bit of bullish
progress that should carry us at least to 2000.
What's bearish: In a nutshell, the 2000 mark is bearish. The last time we got near it
we immediately started a 5.0% decline. At that point we were stochastically
overbought, which makes being overbought during this approach to 2000 equally
concerning. And we're also facing the other reality about our short-term rising wedge
- those lines are gong to converge around 2000, so we won't be benefiting from their
bullish guidance much past that level.
So when will we know which side of the fence we're going to land on? At this pace,
probably around the middle of next week. Until then we'd be a bit hesitant to add on
new long positions, although we're not necessarily selling the ones we've already
got. In other words, we're essentially neutral until it becomes clear how the
composite will respond when it reaches 2000 again.
NASDAQ CHART - DAILY
DOW INDUSTRIALS COMMENTARY
We'll touch on the Dow only briefly this week, as not much has changed since last
week's detailed analysis. As we had mentioned then, the runup for the Dow had been
tremendous. In fact, it was so good, we considered it a little bit too good. Sure
enough, the Dow became the laggard this week as these industrial companies stopped to
take a breather.
This doesn't change anything about our outlook for the index - we're still bullish.
But the weakness was a necessary ingredient for to maintain a healthy bull trend and
not get so far ahead of itself that a big tumble was inevitable. From here we expect
to consolidate a little while longer (move sideways) while all stocks regroup, and
re-establish new bases where appropriate. In fact we're already seeing something of a
minor base for the Dow around the 10,300 level. We've found support there over the
last three sessions, which suggest that the index intends to at least retain the
gains between there and the 10,000 level surpassed only two weeks ago. If we find
support there a couple more times there in the coming week, go ahead and mark 10,300
as a line in the sand on your charts.
Like most indexes, the Dow Jones Industrial Average is overbought according to
stochastics charts. This is just another reason to expect at least a slowdown for the
index. Our fear is that investors know they're sitting on big gains that really
haven't made much progress in the last three or four sessions, so there's a growing
itch to take profits before it's too late. Normally this 'take profits' exit signal
would be the stochastic lines falling under 80, and a stochastic cross under 80 at
this time is looking like a distinct possibility. Obviously that wouldn't be great
for those bulls who are holding long positions right now, as all that selling would
drive prices lower. The ideal situation instead would simply be to 'walk-it-off',
meaning that the stochastic lines dwindle lower to alleviate the selling pressure,
while the index just moves sideways. The point is, don't over-react to a stochastic
sell signal prematurely. Confirm that stochastic sell signal with a fall under
support at 10,300 and a close under the 10-day EMA line, which is currently at
10,220.
DOW INDUSTRIALS CHART - DAILY
BOTTOM LINE
The shortened week was pretty mild, although the overall progress was generally
bullish. We're expecting that trend to continue into next week, as the end of the
year is a fairly bullish period. Just don't expect a huge gain, as the lack of volume
and trading doesn't exactly allow for explosive growth.
Have a very Happy New Year!
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.
