BigTrends.com
Weekly Market Outlook
November 22, 2003
NASDAQ COMMENTARY
Despite the second week of strong selling, and the weakening of the long-term support
line, it's still difficult to be completely bearish, even for the Nasdaq. Yes, we did
close slightly under the support line, but it was a struggle to do so, as the buyers
stepped in yet again on Wednesday and Friday. As we mentioned a couple of weeks ago,
what we're seeing from investors is sheer persistence - nobody wants to let this
thing go down, and people are buying on pretty much any dip they can find.
But aren't the technical signals mostly bearish? Yep. The support line (dashed) was
breached, and the faster MACD line crossed under zero, which is the beginning of a
sell signal. We can even see that the 10 day moving average has crossed under the 20
day moving average - another sell signal. And both stochastic lines are now in the
sub-20 'oversold' region, as seen in the lowest portion of the chart. For those who
read this column regularly, you know that becoming 'oversold can mean that the market
is very weak just as much as it can mean we're due for a bounce. So which stance are
we going to take on this particular oversold condition? We're leaning towards the
'due for a bounce' camp, but as of right now, we're going to wait till early next
week before actually joining either camp.
The reality is that, even though everything looks like a 'sell', charts also look
very similar to the charts from early August. Everything was a 'sell' then too, yet
the Nasdaq gained about 150 points over the following four weeks. It should be much
clearer early next week, as the market starts to move out of this pivot and head in
its new direction. Any lower, and the bear signals will be confirmed. If we head
higher instead, this will end up being just another mini-correction. Tune into the
MidWeek Update, as the picture should be clear by Wednesday.
NASDAQ CHART
S&P 500 COMMENTARY
While one of the big concerns about the Nasdaq was the fact that it fell under its
support line, that's not an issue with the S&P 500. It's still about 15 points above
its support level, so there's still a little room left to fall before we need to get
worried. Other than that, though, the charts and technical indicators are telling
pretty much the same story as you read in the Nasdaq commentary, so we won't rehash
that here.
Instead, we'll take a focused look this week on the economy and the changing
complexion of fundamental performance in the private sector. Check out our 'Bottom
Line' section below for that special commentary.
S&P 500 CHART
BOTTOM LINE
When it comes down to it, what really drives sustained growth in equities is profits;
the underlying companies have to make buying their shares a worthwhile venture. Sure,
there are dips and swings and unjustified price changes, but we're talking about
long-term growth here. Are companies really improving, or is the strong stock market
just leading is to that unproven conclusion? In this case, the market is right -
earnings really are improving (although this year's gains may have somewhat overblown
that improvement). Last week, the average S&P 500 company's P/E ratio (TTM) was
29.96. That's still pretty expensive, but it's much better than the previous week's
average P/E of 30.40. But what about long-term improvements? At this time last year,
the average S&P 500 P/E ratio was 34.80. It's important to not read too much into
those figures, as many of these companies were losing money last year, so turning
even only a small profit would really bring the P/E numbers lower. Yet, it's still a
sign that things really are improving in the bigger picture.
One of the most exciting improvements we're starting to see is in unemployment. The
overall rate held at 6.1% as of last month, but we're now starting to consistently
see new (weekly) unemployment claims come in under the critical 400,000 mark. In
fact, we're seeing a gradual decline in that weekly number. The real test will come
when we get the official unemployment figure from the Department of Labor, on
December 5th. Maybe we'll finally see an improvement there too, and get another
confirmation that the economic expansion and increases in equity values are the real
deal.
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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