The 1315 level continues to be a problem. While we opened last week above it, once we
had fallen back under it by Tuesday we wouldn't even see trades above it for the
remainder of the week. Instead, each time we bumped into it we just slid further
down, finally making a weekly low of 1280.72 on Friday. As if that weren't enough, we
saw five consecutive lower highs last week, resulting in a pretty steep downward
sloping resistance line. The fact that the 10 day moving average is now converging
with that resistance level around 1315 only strengthens that resistance. The bears
are definitely taking the upper hand here.
The MACD chart is in agreement. The MACD line (in red) has rolled over from an
ascending to a descending line, verifying that the general trend truly is lower. Very
near a crossover now, if the MACD line crosses under its moving average line (in
blue) that may actually be the technical signal that incites even further selling - a
bitter irony. This is likely to happen Monday or Tuesday, even with only a minor dip.
Stocks won't find salvation in the accumulation/distribution line either. We can see
that we are in the downward sloping ‘distribution' mode. This is the result
from higher volume on big losses and lower volume on what few bullish days we've had.
Investors just aren't willing to hold stocks. And who can blame them?
So, we're mildly bearish, yet increasingly bearish with each day that we lose ground.
If we get an entire bar under 1300, we'll be fully bearish, targeting a move no lower
than 1200. Resistance, of course, is at 1315 and again at 1355. Support is less
clear, but let's use 1275 as the support line for the time being.
Daily Chart of the Nasdaq Composite (COMPX)
S&P 100 (OEX) Commentary
The S&P 100 chart doesn't tell us anything the Nasdaq chart didn't. We're headed
lower. Even the up days aren't enough to allow us to tread water, as we made a lower
high than the previous day every day last week.
Like the composite, we're seeing familiar territory again at the 420 level. Once we
fell under it, it seems we weren't meant to get back above it. You could say the same
thing about the 10 day EMA, which we also haven't been able to get back over since
last Monday. The fact that the 10 day moving average and the resistance line are both
near 420 only doubles the strength of that resistance.
While we can't seem to go higher, we have no problem going lower. Our DMI chart shows
us just how easily we can make lower lows. The DMIminus and the DMIplus lines,
already separated significantly, are now diverging again - convincingly.
If you're die-hard techie, you'll appreciate the fact that the ADX line (the
indication of the strength of the trend) has just turned higher again. Officially,
the DMI signal occurs when the DMI lines (the red and blue lines) cross each other.
Unofficially, though, we also interpret the ADX cross of the DMI as a warning that
the strength of the trend is waning. We got such a warning in early February that the
downward momentum was dissipating. It was a good signal too, as it occurred just
prior to the huge rally. With the DMIminus line poised to cross back above the ADX
line, that may be a signal of an accelerating downturn.
It's no surprise that we're bearish on the OEX. Strong resistance is at 420, and
again at 430. Support is 410, and then again at 400. We'll hold off on setting a
target bottom for the S&P 100 just yet.
Daily Chart of the S&P 100 (OEX)
The Bottom Line
We seem to have broken out of the sideways channel we were trapped in, heading lower
over the last week. It's no surprise really. The situation in Iraq became more
complex, not just in terms of military action but also politically. The result will
be delays and more tension, which is the last thing the market needs. The market can
deal with good or bad news, but it can't deal with uncertainty. The Federal Reserve
has stated that they are going to sit tight until the situation in Iraq has an ending
in sight. That could be a while, so don't look for any interest rate changes to spur
the economy. We're not getting help from the private sector either, as more and more
companies are already lowering full year forecasts. Despite higher factory orders and
increased productivity, the bottom line is, things don't look so good.
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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