BigTrends.com
Weekly Market Outlook
September 27, 2003
NASDAQ COMMENTARY
Obviously you don't need us to tell you that the market turned ugly this week - the
Nasdaq lost nearly 6% to end the week at 1792. More importantly, that drop pushed the
Composite under both the 10 and 20 day exponential moving averages (EMAs). The even
bigger concern, however, is that we broke under the support line (dashed) that had
been so strong since March. We had done it before in August, but this time, we seem
to have done it with a frightening amount of conviction. We made major drops four of
the five days of this past week, and closed right at the low. As if that weren't bad
enough, we did all of this on increasing volume, suggesting that this was the
consensus of a lot of the investing public.
The Directional Movement Index (or 'DMI') lines also gave us a negative sign, as the
DMI- line (red) crossed above the DMI+ line (blue). This is an indication that the
pattern of lower highs and lower lows is developing into a trend. At this point the
ADX line (dashed) is falling, but if it starts to rise again, it will mean that the
bearish high/low pattern is strengthening, thus completing the final portion of this
technical sell signal (the ADX line is the average difference between the DMI+ and
DMI- lines).
From here, don't be surprised to see a bit of a buyback; stocks look cheap right now,
and there are plenty of people who are absolutely convinced that the new bull market
is upon us. Their buying will push stocks higher, but it's not very likely that their
buying will be able to keep stocks higher. A retest of the 10 and 20 day EMAs as
resistance is probable, and if we fail to surmount them, then plan on another leg
down. Those resistance levels are currently at 1849 and 1845 respectively. As for
support, potential landing points are 1725 and 1625 for the time being.
NASDAQ COMPOSITE CHART
S&P 500 COMMENTARY
The S&P 500 gave back about 3.8% this week, but more importantly, set in motion a
pretty strong downturn that's going to be tough to reverse. In the process, support
at 1015 was broken, although we're now seeing hints of support around the 1000 mark.
That's no real surprise, as these big round numbers tend to be psychological support
and resistance levels.
The bigger story here is the degree of the fall beneath the 10 and 20 day exponential
moving average lines. Friday's close was the furthest we've been under both of the
key EMA levels since March, and is a testament to the strength of the selling. The
next bearish signal (not as if you needed another one) would be the fall of the 10
day EMA (red) under the 20 day EMA (blue). It hasn't happened just yet, but any
losses early next week would create such a crossunder, and in turn, the hopes of the
bulls would pretty much be squashed.
The negative momentum is accelerating, as we can see with our MACD lines. The
crossunder of the faster MACD average (blue) under the slower (red) average is
solidifying, and now being three days old, we can assume this sell signal has some
validity.
For those technicians who think the market is technically oversold, you're right -
stochastics verifies that much. The %K (green line) is under 20, and the %D line
(red) is very nearly there too. But we're going to provide the same warning we always
do about an 'oversold' and 'overbought' market - for proof of that, see how we stay
overbought throughout mid-August and early September. We may end up staying oversold
for a while, and continue falling the whole time.
From here, potential stopping points for the decline are the 980 level, and the 965
level that was support many times in July and August. If we happen to break under
both of those lines, then you really need to tighten your seat belt - we don't have
another support line until 925. The less likely scenario is heading higher again; if
we do, potential resistance levels are the 1015 and the 1040 mark again. But as we
said, given the strength of this week's pullback, a continuation of this decline is
the more likely of the two possibilities.
S&P 500 CHART
BOTTOM LINE
The reversal came with a vengeance this week, setting us back about two weeks worth
of gains. That's the nature of pullbacks - they're faster and bigger than advances.
The problem is, they gain momentum very quickly, so we've got a lot of things working
against us right now. This is not a surprise, as we've mentioned before that
September and October are rough months for stocks. Look for a little buying next
week, but our ultimate expectation is that we have more downside to go in the bigger
picture. We do expect to hit bottom in October, but that still gives us a few weeks
of potentially bearish movement.
Have a Great Trading Week Ahead!
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!
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