T/A by Dr. Bob, posted 7/28/00...
>>> Subject: TA Update from DrBob
From: "Robert Woo" <Drbob512@email.msn.com>
Date: Sat, Jul 29 2000 11:02:51 PM -0700
*****TA UPDATE(July 28)*****
The media blamed Friday’s weakness on the stronger than expected GDP numbers. Technical analysts believe that the price action of stocks/indices are a reflection of many factors affecting supply and demand, which ultimately determines prices, and not just one news item.
The trend of the market is always in force, and the news items over weeks will always be mixed, so that the day’s news will be used to explain the day’s market action, while in reality, the market was going to move in that direction very soon anyway. Examples of that are when prices sink on good news or rise on bad news. This is not to say that fundamentals are not important for long term moves or trends, as they certainly are. But one could make the argument that fundamentally the economy and interest rates should support a bull market now, if one was not aware of technical analysis.
Personally, I believe that the Nasdaq was starting to weaken technically over a week ago, which was reflected in my TA Updates (daily and intraday) and in the Sunday Stocktimers meetings. When selling momentum occurs, then it usually accelerates at some point, as declines occur faster than rising prices, in all markets, not just for stocks, as any futures trader will attest to.
Intermediate term forecasts are usually more accurate than short term ones. For example, when the Nasdaq was in the low 3000’s in May, it was extremely unlikely from TA that we would crash another 20% as some trend followers would lead you to believe, but rather would have a technical rally of significance (over 20% and possibly to 3982), but one could not forecast exactly what the low would be (unless we had a selling climax) or exactly where the rally would end. But TA can at least help with short term ones, such as when the rally last Tuesday had negative breadth, and the weekly stochastic was showing negative divergence, along with other indicators.
The first target was believed to be 4301, and we reached 4280 intraday, and then came down and then rallied but the rally was weak technically, signaling red flags that we might not retest that recovery high and/or take it out. Previously it seemed that 4400 might be reached, but that there was much resistance at 4500. As many of you are aware, I like to re-evaluate TA frequently, and like to take one step at a time. Probably because this rally was a bear market rally during unfavorable seasonality, we could not rally more, regardless of the positive news on the rate and inflation fronts. The cyclical top expected in the second half of July has apparently occurred and we only got to near the first target.
Now what does the market have in store for us. We have the gap at 3582, which did not fill previously, but with the weak technicals in attempting to stay above 4000 this week, it then appeared likely that 3700 would be the first level to be tested, and that if that failed to hold, we would fill all or almost all of the gap in a hurry. We have filled it partially, but we will very likely fill it Monday, or if we have the technical bounce early Monday, then we can fill it late Monday or Tuesday. Regardless, it seems extremely likely we will trade very near 3582 in the next day or two.
When we get to 3582, the bullish case (for the short term anyway) would be borne out by an immediate reversal to the upside, with a strong close and a strong following day. Otherwise, a retest of 3227 or 3048 would probably ensue in August, the two intraday lows during selling climaxes.
Unfortunately, currently the Nasdaq weekly stochastic has just crossed over to the downside (Thursday) and is 29%, which allows for more downside action in the weeks to come. The dailies the past two sessions have been 4% and 3%, so a technical bounce on Monday is likely, as it could have occurred on Friday. I was hoping for a selling climax (e.g. one day decline of over 10% on heavy volume) down to 3582, when the Nasdaq was in the 3900’s, but instead it just drifted down all week.
The trading range for the upcoming week will probably not have a high end above 3900, as we will probably continue the new short term trend of lower highs and lower lows for a few weeks. The lower end of the range could be near 3227 or 3048, as August and September are notorious for low volume and weak stock prices.
Some other indicators (such as Wms%R) are also so oversold that the market is likely to have a technical bounce, but many indicators, including DMI (ADX) imply more downside activity. The Nasdaq index is parabolically too far away from the EMA’s, which also needs to reset in order for the downtrend to continue. Once in a while this parabolic action and extremely oversold condition can last longer without a temporary reprieve (i.e. technical bounce), but since we have already had a Nasdaq crash just a few months ago, it would seem unlikely that we won’t have a technical bounce before more weakness.
A negative sign is that the volume has been higher on the last 3 days of weakness on the Nasdaq than on any other days during the past 11 sessions, including rally days, and yet, there has been no selling climax. The MACD is more negative now, and that bearish momentum is not likely to reverse quickly. Rate of change is negative, while OBV is neutral. Bollingers and EMA’s are sloping down, confirming the bearish trend.
Let’s hope my forecast that 3582 will not provide lasting support in the next few weeks is wrong, but odds seem to favor another break. We shall watch the gap filling action closely.
Over the long term, I remain optimistic, as the fundamentals and monetaries will eventually support higher prices, especially with favorable seasonality from late October to the first quarter of 2001. By then , we should have a long basing trading range in the 3,000’s for the Nasdaq, and will have improving technicals from very oversold levels.
The Dow very probably will not hold 10,500 this upcoming week, and may find 10,300 support tenuous as well. Blue chips have not been as hard hit as the techs recently, but unfavorable seasonality should hit those stocks hard as well in the next few weeks.
Dr.Bob’s commentaries are NOT to be construed as recommendations to buy or sell stocks, bonds, or options. Information is believed to be reliable but CANNOT be guaranteed. Always do your own research before investing. Best wishes and good trading.
Note: Stocktimers meetings will be held as per usual on AOL (5-6:30 pm PST) and Voice Chat, on Sunday night.
Dr.Bob can be contacted at: Drbob512@msn.com <<< |
