<font color=red>2001 Feb 16 Market Analysis
"Only in Canada you say? Pity.”
Well, that used to be the slogan in the TV commercial for Red Rose Tea, but yesterday afternoon it was another kind of “t” - NT.
Nortel Networks was not on the list to report earnings, and shocked the market with the news that they are not going to make it for this quarter. The extent to which NT was not going to “make it” took the market by surprise. From WSJ.com:
“Nortel said it now expects revenue to increase about 15% this year and operating earnings to rise about 10% -- down sharply from that 30% increase Nortel forecast just last month for both revenue and operating earnings.”
“Nortel said its first-quarter prospects have worsened sharply in just the past month. For the first quarter, Nortel said it now expects an operating loss of four cents a share on revenue of $6.3 billion. Last month, Nortel had forecast operating earnings of 16 cents a share on revenue of $8.1 billion.”
The revision for operating earnings, from 16 cents a share to a four cents a share loss, shocked the market, and now provides the catalyst for the Nasdaq to hit our target to the downside, the target we have maintained since the rising wedge pattern was first identified on January 17. We revisit the transcript from the January 17 Trader’s Master Class:
She Said: 01-17 16:05 (ET)
Well, NOW, it is all clear here.
She Said: 01-17 16:06 (ET)
This morning's action confirmed a rising wedge on the daily chart, starting with the Greenspan Spike.
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Given that the NDX is now testing the downtrend line, and resistance from the area of the 20-day EMA and the 50-day MA, and there is this rising wedge pattern here, we must clearly be careful since a rising wedge typically resolves to the downside, with a target of the place from whence it came, and in this instance, the low of the Greenspan Spike. Breaking this low would be a huge blow to confidence in the market.
So while the trendlines and patterns are being tested, we are careful, but with that huge blast of volume in the QQQ this morning, it makes me think that if this market cannot go up tomorrow, and continues down, it will be a big down day. Since we closed on the lows of the day in both the SP and ND futures, there will be a lot of longs trapped, and they will have to admit defeat at some point, should the move down continue, and they will be looking to get off their positions.
It’s been almost exactly a month since that day, and here we are, on a Friday morning, staring right at the target, perhaps even at some sort of financial Armageddon, at the end of a decline that is almost 10 months old. Going into today’s trading, before the NT announcement, participants had been quite sanguine, as everyone expected the earnings announcement from DELL would not be good. They had digested this well, as bits and pieces of the bad news had been leaked. Yesterday, CIEN release good earnings that launched some short covering. With the NT news, all bets are off. When one of the world’s largest technology companies tells it like it is, it makes us wonder. On top of all this, next Monday is a market holiday in the U.S.
For the sake of all the 401K plans out there, let’s see it the market can form some sort of capitulation bottom here on the target of the rising wedge and successfully test the January low. |
