For bearish sentiment to increase (or to register as HAVING increased) near the bottom of the range is normal. At the same time, amidst options expiration, low pre-Holiday weekend volume, a short-term oversold condition, and conflicting if mainly negative news, a major "statement" session on Friday was not to be expected. Instead, we had a multiply range bound session, with numerous issues putting in narrow range days even amidst a sell-off that, with MSFT doing so much of the heavy pressing and Dell finishing down even despite its positive announcement, may have looked a lot worse than it really was, even if longer-term indications remain negative.
On the major indices, the initial down-move on Friday morning could not break the Wednesday low, with only the Nasdaq Composite managing even a marginal penetration: They had begun to bounce even before Dell's upward revisions, a positive consumer confidence report, and Fed damage control efforts stiffened and even spiked the markets in the morning. On the Composite, the Dell spike turned back precisely at the same congestion area (ca. 1965) established Wednesday, and previously identified as the "initial target" on breakdown from the minor head and shoulders top (the upper portion of the "loveseat" formation). The inability to penetrate this area heading upward left the index with nowhere to go but down: A rupture of the early morning/Wednesday lows led to a probe to the range low (bottom of the lower "head"), but was likewise turned back.
The Nasdaq 100 continues to display significant relative weakness: While the intersection of minor down and uptrend lines caught the initial Wednesday sell-off on the Composite, the NDX fell to intersections of horizontal support and a minor downtrendline. Similarly, the action on Friday fell to the intersection of minor downtrendlines and lower horizontal support, filling and closing within the 11/12 -13 gap whose lower boundary (ca. 1537) would correspond to 1850 on the Composite, and is only 40 points above the last pre-9/11 swing high.
Though the moves below the historical s/r range (ca. 1935 COMPX), below the "last chance" uptrend-line from the Sept. lows, and below the 200 DMAs in all major indices and and almost all major tech sector indices are negatives pointing to longer-term deterioration, to this point they mainly confirm, or over-confirm, the tailing off of the post-September rally into range trading. With next week including a very large number of reports crammed into four days, with the general trend among secondary issues being weighted toward upside "surprises," and with the indices short-term oversold, at support, and having already absorbed initial reactions to reports from, among others, tech heavyweights INTC, MSFT, and SUNW, some short-term retracement of recent losses seems likely. If such a move materializes, initial resistance on on the Composite should come ca. 1950, to be followed by 1965, and then the previously critical gap area ca. 1980-87.
Though all price levels, targets, and intersections can be relevant to day-trading, for wider time frames any strong movement above the 1987 area (or >1605 NDX) would tend to negate the downtrend, and point to a re-test of the upper range boundary, or, at worst, the establishment of a slower, more sustainable downtrend. A lack of any initial upward move or a failure (as opposed to a mere pause) at 1950 COMPX or ca. 1560 NDX, perhaps in conjunction with severe company-specific disappointments or other news reactions, would tend to confirm a continued steep downtrend, raising the probability of unbroken and even accelerating price deterioration both in the short and long term.
Updated version of "loveseat" chart - in green/against white in deference to Bobby's complaints regarding legibility:
home.pacbell.net
Approximately equivalent, if sketchier, NDX:
home.pacbell.net |
