Typically it's the Nasdaq that leads the rest of the market, in both good and bad
ways. That's not been the case this week, however, as the tech-heavy index has has
turned in relatively mild losses in comparison to the Dow and the S&P indexes. In
fact, the Nasdaq Composite still looks to be the strongest (or perhaps the least
weak) index, and is actually giving us a few mixed signals despite a moderate loss of
1.2% for the week.
We've been looking at the intermediate-term support line (dashed line in the chart
below) for the last couple of weeks, and had concerns that we would break under it
early this week. Despite some selling, we still haven't broken under that key
support. Until we do that, the declines over the last few days are technically inside
the generally bullish (rising) trend lines, making Monday's fall only a normal blip
in the course of a bullish run. In fact, if you look closely at the charts, you can
see that the last four days of last week were spent trying to recover from Monday, as
we made a higher high and higher low each of those days. Or to put it another way, if
we take Monday out of the equation, we actually had a pretty bullish week.
Unfortunately, you can't take Monday out of the equation. Besides, it's not just
Monday's price drop that looks bearish. This rally is also running out of buyers. The
accumulation-distribution trend has shown a clear shift from buying mode to selling
mode with the break under accumulation-distribution support line (see middle of
chart). The MACD chart confirms that the major momentum has been lost. With both MACD
lines now falling steeply, we're rapidly approaching the MACD zero line. Should we
fall under that level, the currently slim chance of a short-term recovery becomes
even more remote. We don't want to sound the alarm just yet, but do keep an eye out
for a fall under zero on MACD charts.
In the meantime, our outlook is generally bullish, based on the price-volume trend,
and the re-cross under the 10-day exponential moving average (EMA) line. Full
bearishness comes with a close under the lower support line, while we won't be
considering a bullish posture until we close above 1685.
Support is at 1620 and 1600. Resistance is at 1685.
Daily Chart of the Nasdaq Composite (COMPX)
Dow Industrials Commentary
We're dusting off the Dow chart again to highlight the fact that we have fallen back
under the important 9000 level this week, but that's far from our only bearish
indication. Unlike the Nasdaq, the Dow made a lower low every day this week, and
closed at its lowest close on Friday. This selling momentum does not bode well for
early next week, nor is it encouraging that we crossed back under the key 10-day and
20-day exponential moving averages on Friday.
The MACD chart for the Dow is pretty grim too, as it has dropped without hesitation,
actually indicating that the negative momentum is accelerating. Like the Nasdaq's
MACD, if we cross under the zero line, most recovery hopes will be dashed.
Stochastic lines for the Dow are on the verge entering the 'oversold' sub-20 area on
the chart, but as you're aware by now, being 'technically' oversold does not
guarantee that we get an upside reversal. In much the same way that we were
'overbought' for the last two months, we're interpreting this low stochastic level as
an indication of the strength of the downtrend. In other words, we could stay down
here in the 'oversold' area for a while.
There is one last line in the sand for the Dow, and that's the intermediate-term
support line. Like the Nasdaq, the Dow hasn't broken under its support line yet
either, but it certainly is poised to do so with any weakness next week. In fact,
today's low brushed that line, and the index didn't close much higher than that. So,
while technically we're still in the bullish channel, the scenario is tipping in
favor of the bears at this point.
Support for the Dow is at 8970. Resistance is at 9100 and 9350.
Dow Chart
The Bottom Line
While we're still technically above bullish trend lines, the bulls should certainly
be concerned at this point. While prices may not be falling at a painful rate just
yet, most indications are calling for a pullback to some degree, and not just on
technical charts. Optimism is excessively high, we were overbought throughout May and
June, and the rate cut is an indication that the economy is weak enough to need a
boost - something has to give eventually. The signal here will be a daily closing
level under the intermediate-term support lines we mentioned; we recommend waiting a
day past that just to serve as confirmation of any downturn.
Have a Great Trading Week Ahead!
Price Headley, CFA, 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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