General Commentary
Well, it seemed like it shouldn't be very difficult for the Nasdaq to hold support in the area of 1850. Yet
after the experience of the past eighteen months, it should come as no surprise that it didn't. That's what
bear markets do -- they disappoint -- and there is a high probably we remain in the midst of a bear
market. If there is a positive side to this, it might be that the index is preparing traders for life's
subsequent disappointments -- consider it a character building experience if you will. Feel free to ignore
the "scraping the bottom of the barrel" nature of the silver lining.
It's worth noting the price activity was somewhat unusual in Thursday's session. A number of smaller
former market favorites underwent what looked like a washout while larger cap names appeared as if it
was just another day in the market. Those in the former category include but aren't limited to Siebel
Systems (SEBL -8.7%), Extreme Networks (EXTR -11.9%), QLogic (QLGC -12.7%) and
Checkpoint Software (CHKP -7.5%). So while the Internet issues were successfully washed out long
ago, the process of wringing out premiums in other spots continues daily and isn't always fun to watch.
After the close Thursday, Cisco Systems (CSCO) announced a corporate reorganization and issued an
update on its business. Management indicated it's seeing orders for the first few weeks of its current
quarter which are in line with prior projections and added that it's also seeing broader signs of
stabilization in its business. This can be read one of two ways: 1) we've heard similar language from
Cisco and other companies only to find out later the guidance wasn't quite on the mark or 2) Cisco has a
longer-term reputation for issuing responsible guidance that leans towards the conservative side so
maybe the current comments are worth consideration. At this point, it's more or less up to the market as
to which way it chooses to assess it.
From a technical standpoint, there are a few things worth mentioning. The Nasdaq closed under a
relatively important support level in the area of 1850/1853. To top it off, it closed on the session's lows
at 1843. Not a terribly bullish technical picture all in all. The one mitigating factor may be that the 1843
close wasn't a significant deviation from support at 1850. Put another way, some might contend today
didn't constitute a "clean technical break."
Whether it did or didn't break support at 1850 is essentially a matter of semantics. Going forward there
are several technical considerations to have in mind. To the downside, there isn't a lot in terms of
steadfast support. Watch the 1831 level as the first area of likely support -- that represents open/close
support going back earlier in the week. On a break under 1831, the chances are relatively good the
index will see 1750. Yet the chances it goes straight to 1750 in a single session aren't great. Look to the
area around 1811/1817 for very near-term support if first support at 1831 is breached. That area
brackets Wednesday's intraday low in addition to the lower end of the Nasdaq's 20-day Bollinger
bands.
To the upside, 1850/1853 will serve as first resistance -- a close over that level would improve the
near-term outlook modestly. On a break above 1853, watch for subsequent overhead around 1883
which represents an area of prior support, a 62% retracement of the Spring rally, and approximates the
intraday day high twice this week. After that, the Nasdaq is likely to see a potential head bump at 1900.
To make it very simple -- a clean close under 1850 is bad, a close above 1850 improves the near-term
outlook somewhat, and a close over 1883 could lead to a tradeable rally. The Cisco guidance should
contribute to positive sentiment into the open -- whether that sentiment is sustainable through a Friday in
the Summer remains to be seen.
Michael Ashbaugh |
