BigTrends.com
Weekly Market Outlook
August 2, 2003
Nasdaq Commentary
In last week's Midweek Update we pointed out that the Nasdaq's 20 day exponential
moving average had bearishly fallen under the intermediate-term support line. Since
then, the 10 day EMA has done the same, and on Friday the Nasdaq Composite finally
closed under that support level - for the first time since this five month rally
began back in March. This, of course, has major bearish implications.
The final event we'd like to see to confirm a bearish chart is a close under the 20
day EMA line, as that would remove any potential support levels that could keep us
afloat. That would also give us a second close under the intermediate support, which
is a prudent requirement given the choppy, range-bound movement we've been dealing
with the last few weeks. Until we actually get that chart pattern, anything is
possible, including a bounce back up to the top end of our range.
And while the top end of that range is July's high of 1776, it's also worth pointing
out that a descending support line has been formed since then (red dashed line).
We've hit daily highs no higher than that line (with the exception of yesterday) for
the last three weeks. In other words, even a bullish move up to that resistance
doesn't challenge our now-bearish bias. On Monday that support line will fall to a
level near 1730, but you'll need to adjust that figure slightly lower as each day
passes.
The MACD lines continue to indicate negative momentum, and actually signaled an
acceleration in negative momentum today.Stochastics, too, is bearish. The two
stochastic lines had chopped around each other over the last couple of weeks, but
today's decisive fall pushed the %K line (blue) back under %D (red), which is a
technical sell signal.
Support is at 1710, with resistance at 1730 and 1776.
Daily Chart of the Nasdaq Composite (COMPX)
http://www.bigtrends.com/images/080103otc.gif
S&P 500 Commentary
We're back to the weekly chart of the S&P 500 to illustrate the fact that we've seen
very little net movement over the last two months, being trapped between 975 and
1015. In fact, we're effectively trapped under the 1000 mark, as we still haven't
closed above there on a weekly basis despite several intra-week moves above that
level.
To adjust for the slower-moving weekly data, our exponential moving average line this
week is a nine bar (nine week) EMA. You can see that we've found support there a
couple of times since coming up off of March's lows. You can also see that this first
time since April that this EMA line has threatened to turn over and start a new
decline. All the same, on a weekly basis, this line is still acting as a strong
support level, including this week - we closed right at it Friday. An official sell
signal would be a firm close under this important EMA, which is currently at 980.
This flattened nine week EMA line is also now parallel with our horizontal support
and resistance lines, which have played a substantial role in keeping the index
contained in a tight range. The lower end of this range is 975 (lower red dashed
line), and a weekly closing under this level will be a confirming sell signal. But
it's important not to jump the gun here - we're still above both of these support
levels, and as such, the possibility remains that we could bounce to the higher end
of the range again.
That said, most indications are still calling for a pullback. The S&P 500 broke under
its intermediate-term support line (dark dashed line) two weeks ago, and hasn't even
traded above that line since then. Our stochastics lines and MACD lines, both
adjusted for weekly data, are also pointing the indexes lower. Both stochastic lines
have been in 'overbought' territory for quite some time, but with the recent slide
under the 80+ 'overbought' threshold, we can see that stocks are starting to correct
their overbought condition. The weekly MACD lines also made a bearish crossing
pattern this week, indicating a negative momentum divergence.
Again, a close under the support lines are going to cue the beginning of any
downturn, so patience is on order. We've been trading sideways now for about two
months, so making long exits or short entries when we first got stochastic signals
would have been relatively fruitless. This is still the case. Wait for the close
under 975, and ultimately a close under July's low of 962. Otherwise, we may find
ourselves still range-bound.
S&P 500 Chart - Daily
http://www.bigtrends.com/images/080103spx.gif
The Bottom Line
This past week provided plenty of good economic news. GDP was not only up, but well
above expectations. The PMI and ISM indexes were also better than expected, and they
were both above the critical 50 mark. And of course, the employment scenario is at
least hinting at improvement. The overall unemployment level fell slightly, and we
got our second consecutive week of initial claims under the benchmark 400,000 figure.
These all point to a rebounding economy.
But the market can and does move independently of the economy, and it may be months
before this good economic news has an impact on share prices. Between now and then,
as you've read, stocks certainly could experience a pullback. Keep an eye on the
remaining support levels, as a break under them may signal the beginning of such a
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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