<font color=blue>2001 June 08 Market Commentary
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Grinding Away
While this market has been characterized as “climbing the wall of worry” as we enter earnings season, a quick look at the CBOE market volatility index finds that it is at its lowest point since the end of summer 2000.
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Investors and traders appear to quite complacent and bullish at this point, expecting the market to break out to the upside. If we look around at the popular financial media, we find many analysts talking about stocks “basing” and indices “poised to break out”.
Readers will recall that we have been discussing the quiet erosion in the major market indices over the past couple of weeks, and now, we will see if a reversal is at hand. First, let’s look at the market internals.
NYSE New Highs and New Lows
We can see here that the 10-day net differential between the number of new 52-week highs and new lows rolled over about a week ago. While the number of new highs outnumber the number of new lows, the erosion so far is not that serious. We will keep an eye on the number of new highs and lows on a daily basis. If there is a sudden decrease in the number of new highs coupled with an explosion of new lows on a big down day, the warning flag would go up.
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NASDAQ New Highs and New Lows
The 10-day net differential between the number of new 52-week highs and new lows also rolled over about a week ago. Our comments for this chart are the same as the one for the NYSE new highs/new lows.
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The NASDAQ 100 Index
Readers will recall that we gave up on the head and shoulders reversal pattern seen on the daily chart a couple of weeks ago when it failed to decisively break out to the upside. We mentioned that in the big picture, all of the price action on the NDX since the April low has been basically a bounce within a long-term downtrend, and the question that needs to be answered now is if this entire consolidation is now coming to an end.
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Given that the uptrend line since the April low was broken, we are now watching to see if the backside of the uptrend line will provide resistance overhead on a bounce. At the same time, there is a well-defined trading range seen on the daily chart, in the 2,000 area. The question now is what happens here on the bounce. Will resistance in the 2,000 area hold or will it not? The kind of price action we are looking for to prove that buyers are still around will be a strong thrust to the upside over the next few days. Failing that, the path of least resistance will be to the downside to test support at the 20-day EMA at 1900, the 50-day MA at 1890, and the lower end of the trading range at 1740.
The S&P 500 Index
The uptrend line from the April low has also been broken for the SPX. At this point, it is trading within a change of trend zone, going sideways between 1,245 and 1,315.
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The Dow Jones Industrial Index
The uptrend line from the April low has also been broken for the INDU. At this point, it is trading within a change of trend zone, going sideways between 10,800 and 11,400.
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Strategy
While the averages are trading within these well-defined trading ranges, we will simply watch for price to wander from the high end to the low end and vice versa, and wait for a breakout. For traders, this means hit and run trading, as no trend is in force.
The Semiconductor Index
There has been much talk about the pending “breakout” of the SOX, as seen here on the daily chart. 700 is seen as a key level, after a long period of basing. Traders should be on the alert for a false breakout, should it trade above 700 next week. With so much anticipation, many traders will already be positioned for the move, and if a move to the upside does not attract new buyers quickly to produce thrust to the upside, it may “fake out”.
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Have a great weekend!
Teresa |
