BigTrends.com
Weekly Market Outlook
August 30, 2003
Nasdaq Commentary
The Nasdaq Composite (and all stocks for that matter) continued to break to new
twelve month highs, picking up over 2.5 percent for the week, which is actually one
of the stronger weeks we've seen while being somewhat range-bound. This surge,
although defying the odds, has re-established enough bullish momentum to place us
right at make-or-break levels. So what's next?
We'll likely have an answer by Wednesday. Why not Tuesday? Market holidays can skew
the way in which markets move - and it's usually with a bullish bias. With an extra
day added to the weekend, we'll have an extra day's worth of transactions to process
on Tuesday. Plus, these long weekends give investors a chance to mull things over and
take any actions they feel necessary. We're better served by letting the crowd take
care of their business on Tuesday, and responding to them the day after.
So what will be bullish and what will be bearish? Our bearish concern is simply that
we still have a lot of things working against the market. September is almost always
a rough month, and we don't expect this time around to be any different. Couple that
with the fact that stocks are still overvalued, and we may see a major change of
heart next week. As if that weren't enough, we can see from Friday's high that
1812/1813 is a line in the sand for a lot of folks, so we may see some profit-taking
as we enter into the new month.
A close above the previous week's high of 1812 would certainly be a sign of strength.
We got above there Friday, so getting there again this coming week wouldn't be too
hard to do. The one caveat to Friday's strength is that volume was as light as you
may expect it to be right before a holiday weekend. We'd prefer to see the market
move on a little heavier volume before taking a firm stance. Still, the momentum is
bullish according to MACD lines, and with the stochastic lines now back above 80, we
can see that investors are fine with the fact that stocks are overbought.
As we said earlier, one of these scenarios will be validated early this coming week.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 500 Commentary
For this week's S&P 500 commentary, we're going to completely switch gears and use a
monthly chart. This is obviously a bit of a change from our usual analysis, but we
think it's important to highlight some of the very meaningful lines that long-term
charts are now making.
While the analysis is still going to be technical in nature, a brief explanation of
our signal parameters is on order. Our short moving average line (red) is a 9-month
moving average. The particular timeframe may seem somewhat arbitrary, but it's really
not. Nine months is about the amount of time it takes for a Federal Reserve
adjustment (such as a rate cut) to trickle into the economy. A 9-month line also
closely approximates the highly important 200-day moving average line. We're also
going to plot an 18 month moving average line (blue) to use for comparison.
You know that stocks have been headed lower since 2000. During that period we've seen
a few rallies, but none of them really sparked any kind of stock market recovery.
Instead, each time the market strengthened, it soon ran into resistance (green line)
and began to fall back even further. As you can see on the chart, the S&P 500 hasn't
closed above its 9 month average since October of 2000 (that's when the carnage
really started), nor has it even traded above its 18 month average since March of
2001. That is, until now.
As of June, all three barriers have been breached. In fact, the 18 month average is
on the verge of crossing above the 9 month average - for the first time since
February of 2001. This is a testament to the current momentum of stocks. The
long-term MACD chart is confirming that momentum. We saw a bullish MACD crossover on
May, and that bullish divergence is still widening. This is certainly encouraging to
those who are counting on a recovery.
So are we saying this is it? Is the bear market over? No, not at all. In fact, we
still believe that September will be as weak as it always is. But it is encouraging
to be headed into the coming rough patch with some bullish steam. This will certainly
help deter some of the selling and downturn next month. And if we survive September
relatively unscathed (i.e. with spooking everybody out of the market), it will make
the fourth quarter just that much more bullish.
That said, don't start counting your money yet. Not only do we have the usual
September blues to contend with, but we also (still) have strong resistance at 1015.
On the other hand, we still have support around 960. If we can close out September at
least above that 960 mark, that would be great, but as long as we can stay above the
18 month line (at 950), we all should enjoy a rather nice fourth quarter.
S&P 500 (SPX) Chart - Monthly
The Bottom Line
Early next week we'll get a good feel for whether or not this rally has any
longevity, but don't necessarily use Tuesday as your only yardstick. A couple of
closes above 1812 for the Nasdaq would be bullish, but the S&P 500 is still under
resistance at 1015. We'd like to see both of these indexes break above their
resistance in tandem before buying into this strength. Regardless, the current
momentum is certainly on the side of the bulls.
It's important not to over-react to any weakness we're likely to see over the next
few weeks. September usually gives us some small declines, but this may actually
benefit overvalued stocks. It also makes the fourth quarter rally just that much
stronger.
Have a Great Holiday Weekend and 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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