Here is some interesting from Investment House on semiconductors in their weekly report:
investmenthouse.com
Nasdaq has a powerful price rally, but it still lags.
The Nasdaq shot up 4.1% Friday, outpacing both the Dow and S&P in the price gain. That is the way it usually works when there is a rally: the ever hopeful pour money into the techs, looking for late 1999 again. Heck, NVLS said it would lose a penny less than originally thought and that it just might possibly be the bottom of the cycle. That is surely worthy of a $6 gain on the session. What has happened since the bear market started is that there are powerful upside price moves in techs that flameout fast as well. The rise off of the September bottom was the best thus far, but the impetus for that died out and so did the rally. Perhaps this new economic data means the recovery will occur in tech as well; thus far, even with the rally on Friday, the Nasdaq is not showing it.
Truthfully, the semiconductors were the bright spot for the techs. Running down the list of big name tech stocks, damn few rallied Friday on volume as strong as they sold on in the prior sessions. Take out the semiconductors, and you have a very shaky move. Moreover, an essential part of any strong move are important stocks in good patterns, i.e., without a lot of overhead supply to push them right back down when prior, disgruntled investors feel they can get even on their prior less fortunate purchases.
Even with the semiconductors the move was not as strong as the prices indicate. Volume was lower on the big move, unable to eclipse the previous session selling volume. The A/D line could not even put together a 2:1 advantage, the minimum on a follow through session (1.87 to 1). Money flowed into beaten down tech stocks, but there was no heavy institutional buying.
Friday did kill a bunch of short positions, but it also did not break many downtrends. Until we see those downtrends snapping on stronger volume we have to realize that the trend is still down for most techs. After such a big price move Friday, we will see how much power was really there this week. After the close Friday, ORCL used the big rally as its opportunity to announce it would not be able to live up to Larry Ellison’s ego, that it would indeed miss this quarter’s earnings. That quieted things a bit late, but not a whole lot; this week we will see what the index is really made of. It had every reason to rally hard Friday, but it could not show true strength. That showed a lot in itself.
After two days of distributive selling and on its way down to retest 1700, the Nasdaq reversed and scored a huge price gain that cleared the January 2002 and March 2000 down trendlines (1765 and 1773, respectively). It is right at some potential resistance at 1800, but if the move is for real that is not the point that will stop it. That would be up near the 50 day MVA at 1857.23 and the bottom of the November consolidation range at 1875. Perhaps a 56% retracement of the move off of the September bottom is sufficient.
Later in the update
The pattern, however, is not a great one: it just cleared the down trendlines Friday on lighter volume than the prior selling session. It was not a trend reversal move as the volume was not there. It could turn into a stronger move, but it and many of its leading stocks just are not in great patterns to lead. Some semiconductors look decent to good (the SOX move was nothing short of incredible with an 11% jump), but they are in the minority. Again, perhaps it will turn into a stronger move, but the question remains: is the economic news good enough to support big jumps in P/E ratios for all Nasdaq big names, especially when those big names are not starting to ramp earnings? GTW and ORCL in the past two days said they were not going to do it. The market looks down the road, but for Nasdaq big names to continue this move there will have to be an indication that capital investment is underway. Thus far it is not. Moreover, it will take some time for more leaders to clear that overhead supply and mount lasting moves. There are less well known Nasdaq stocks that we can look at to participate in any further move. In any event, we don’t want to outguess the market; let it show us what and when with the patterns stocks set up.
A powerful move to end the week with breakouts on the Dow and S&P 500. It is too bad the Nasdaq could not make it three with a surge in volume. That leaves open the question as to what the big techs will do; attempt a further rally and follow through or just fade. In any event it appears that whether the Nasdaq follows or languishes, certain economically sensitive areas will continue to reap the benefit of the improving economic picture. Friday’s vastly improved news in the manufacturing sector bodes well for the non-tech sectors as the country gets back to business though it may not be a powerful move.
As for the indexes, after such a powerful move we may see a continued move on Monday, but in this market the MO is to rally sharply and then take some profits. The breakouts in the Dow and S&P give us more confidence any pullback will hold, but this can give us better exit points on some put plays we want to get out of and also allow us to get in on some moves we may have missed on breakouts. The Nasdaq rallied, but it has not followed through or shown real buying power from the big money. Also there is potentially some trouble from ORCL’s news; is NVLS’ losing a penny less than expected that wonderful of news when ORCL is not going to make its previous forecast?
As for the non-large cap tech stocks, the new uptrend remains in place and is bolstered by the moves in the Dow, the S&P and the broad NYSE advance/decline line. We will therefore continue to look to those plays to the upside. AS for Nasdaq big names, there may be a few upside plays to take advantage of such as KLAC and the like that are actually in good patterns and moving higher. Downside positions are in limbo now after Friday’s big price surge, and we will not look to initiate many more of those until the tech index gives us a better picture of whether Friday was something for real or just another pretty day.
Support and Resistance
Nasdaq: Closed at 1802.74.
- Resistance: 1800 is slight resistance. The 50 day MVA is next at 1857.23, but the bottom of the November consolidation range at 1875 has proved to be support and resistance in the past. A break over that point is the turning point. The 200 day and simple 50 day MVA are next (1911.06 and 1903.62, respectively). That is just under the top of the November consolidation at 1934 to 1941.
- Support: 1775 is some support and then the November gap up point at 1745. 1700 has held loosely. After that, there is not much until 1626, the early October gap up point and the April 2000 intraday low at 1619.58.
S&P 500: Closed at 1131.78.
- Resistance: 1150 (former support and resistance) and the 200 day MVA (1152.86) are next and are important resistance. The next level is 1175 marking the December and January tops. That point also marks roughly the lows of summer consolidation.
- Support: 1125 is the hump in the double bottom, and the simple 50 day MVA is also there at 1126.53. 1100 can act as support and did so last week. Then 1075 to 1080 continues to hold tough, right at the March 2001 intraday low. There is a jumble of prices in a range from 1075 to 1050. 1050 was tested twice in October, holding both times.
Dow: Closed at 10,368.86.
- Resistance: Cleared the January high at 10,300 on the breakout. 10,400 to 10,600 makes up the rest of the June, July, and August 2001 trading range.
- Support: The January high at 10,300. Then the 200 day MVA (10,033.77) and 10,000. After that is 9730, the first January low and has provided some support. There is some support at 9691, the bottom of the November, December and January range.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
3-5-02
- ISM Services, February (10:00): 51.0 versus 49.6 prior.
3-6-02
- Factory Orders, January (10:00): 1.4% versus 1.2% prior.
- Fed Beige Book (2:00)
3-7-02
- Initial Claims, 3/2 (8:30): 380K versus 378K prior.
- Productivity-Rev., Q4 (8:30): 380K versus 378K prior.
- Consumer Credit, January (3:00): $3.2B versus -$5.1B prior.
3-8-02
- Nonfarm Payrolls, February (8:30): Unch. versus -89K prior.
- Unemployment Rate, February (8:30): 5.8% versus 5.6% prior.
- Average Workweek, February (8:30): 34.1 versus 34.0 prior.
- Hourly Earnings, February (8:30): 0.3% versus 0.0% prior.
I'm not sure the large caps are ready to take the lead just yet Gottfried. The greatest focus of potential accounting issues are likely to be magnified on large cap issues limiting the upside of large caps for another few months.
RtS |
