Today is a repeat of last Wednesday, where stocks really started to look weak and had
a lot of us wondering if the party was over. But when all was said and done, last
week we escaped relatively unscathed. What does this week hold, and is today's
pullback a cue of things to come? Don't jump ship just yet
NASDAQ COMMENTARY
The headache for the Nasdaq Composite (also known as the 1520 level) was cured after
Monday's 20 point gain, to put us well above the resistance line that had been so
tough to cross. Now that we crossed it, it seems to be acting as a support line - we
haven't traded below it since the opening on Monday. Getting clean support is nice,
but getting clean support at what used to be resistance is even nicer.
But the 1520 level isn't the only place we're getting support. We're still bouncing
off of our 10 day exponential moving average line every time we touch it.
Unfortunately, we're 18 points above it right now, so testing it today wouldn't be a
lot of fun for any long positions you may have.
The composite also made a new trend high today at 1549.94, which was conspicuously
just under 1550. It's odd that a sell-off would begin at that point, as there is no
previous resistance at that level, nor is at the top of our bullish channel. All the
same, that's where the trouble started so that's where we'll draw our next resistance
line.
If you read the Weekly Market Outlook, you'll know that the stochastics sell signal
we had been anticipating actually appeared on Friday. However, that was the same day
the Nasdaq jumped 30 points, which (in our eyes) negated the signal. There has to be
evidence that the sell signal isn't errant, and a 30 point gain isn't it. That was a
fortunate decision too, since the stochastic lines popped back up above 80 again,
which is a testament to the strength of this market.
So what do we make of today's big fall? Not much really. This kind of moderate
pullback is part of any trend. As long as we continue to make a higher high and/or a
higher low, the trend remains intact. We won't be overly concerned about the Nasdaq's
decline until we make close under our 10 day EMA line, or until 2 or 3 consecutively
lower closes. We also encourage you to keep an eye on the highs and lows on a
day-by-day basis. Even if we make higher closes, lower highs coupled with lower lows
can be an early warning. Till then, we're remaining with a cautiously bullish bias
till the market gives a real reason not to.
You might want to note that if we close lower today, that will be the second
consecutive day of losses. The Weekly Market Outlook won't arrive until this coming
Saturday, so you'll have to keep an eye on this until then.
Support is at 1510 and 1482. Resistance is at 1550.
Daily Chart of the Nasdaq Composite (COMPX)
DOW INDUSTRIALS COMMENTARY
We're opting to look at the Dow Industrials in this Mid-Week report, as it provides
the best illustration of our current trend lines.
Today's pullback makes a little more sense when viewing the DJIA chart. It is true
that the Dow moves a little slower than the Nasdaq, so it's no shock that the
industrial average has yet get above January's high, let alone December's high.
However, the Nasdaq has a knack for moving too fast and over-inflating itself. The
Dow Average may be a better gauge of the true market condition.
And what is that condition? You already know the general trend is higher. What we're
most interested in is not quite as obvious, which is whether or not the trend will
last. We've got a couple of patterns that make us think it will.
First, look at the rising support and resistance lines (dashed). This channel has
been forming for over a month, and even with today's dip we're still inside the
channel. In fact, we could fall a bit more and still be well inside the uptrending
lines. That's one of the reasons we're not overly concerned about today's action. The
10 day EMA is also serving as a support line, while the 20 day EMA is serving as
secondary support.
Second, they number of buyers is being sustained, as seen in the accumulation
-distribution line. The accumulation-distribution measures buying volume against
selling volume (where buying means the index gained on that day, and selling means
the index lost ground that day). If you read the Daily TrendWatch and the Weekly
Market Outlook, you'll know that we were not sure that there were enough interested
buyers to maintain this rally. After all, the recent trend has been to see plenty of
volume as rallies begin, but then see volume drop shortly thereafter.
In the case of the current trend, however, volume is at least steady as prices move
higher. What the rising accumulation-distribution line indicates is that buyers are a
little more willing, and sellers are a little more hesitant. That's bullish.
The accumulation-distribution line can also trend, so we've established support and
resistance lines for it. The great part about the accumulation-distribution line is
that the trend breaks here before stock prices do. We'll be watching this indicator
for early hints of weakness. Till then, as long as the buying trend is up, stocks
will be too.
Support for the Dow is at 8590 and 8525. Resistance is at 8740 and 8855.
Daily Chart of the Dow Industrial Average
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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