SHARP REVERSAL RALLY AUGURS WELL FOR POSSIBLE IMPORTANT LOW
By Harry Boxer, The Technical Trader (www.thetechtrader.com)
Today was one of the wildest days I’ve seen in months. After going sharply lower near the opening, Nasdaq managed to hold until after lunch hour in a basing attempt that turned out to be a coil-type pattern that was eventually broken to the downside.
While Nasdaq was holding up comparatively well, the S&P 500 and Dow were making sharply lower lows. Then, with about an hour and a half to go the NYSE tick got to as low as –1240. I haven’t seen that negative a number in quite a while. Also, at that point the VIX was nearing 44 and the VXN was near 70. Basically, everything came to a head at once. Despite that, many Nasdaq 100 stocks were actually up at that point, leading me to believe we could very easily have a strong reversal rally.
We certainly got it. The market exploded off the lows. We got a 7% rally in an hour and 15 minutes on the Nasdaq 100, taking us from 955 to over 1020. The S&P 500 rallied from 876 to 918 and the Dow rallied from 8245 to 8640, nearly a 400-point rally, a huge surge on the Dow. It was led by Microsoft and IBM, although Microsoft still closed down on the day. It came 3.80 off its low, trading as low as 48 today, closing at 51.80. IBM, another bellwether, went from 66.60 to 71, and closed near there.
A review of the technicals showed, as it normally does on a big reversal day, that the technicals didn’t quite get back into positive territory because they had a long way to go and didn’t have enough time before the close. The advance-declines on New York were 900 up, 2340 down. Up/down volume was 2-1 negative. Total volume was about 1.9 billion. Nasdaq was 21-13 negative on advance-declines. Up/volume, however, did get positive by 11-8, and over 2 billion shares traded on Nasdaq.
Again, the keys today were the big negative tick numbers and high VIX readings today that largely contributed to and triggered the rally. Bear-market rallies tend to be very furious because they’re additionally fueled by short covering. Although this was a stronger rally than I’ve seen in a while, we still have a lot of overhead resistance to overcome and the market obviously still has a lot to prove.
The good part about today was the positive divergence set up by the Nasdaq 100, which did not make a new low and held at its double-bottom of the last two weeks, while the S&P 500 and Dow were going sharply lower. The S&P 500 today was below 900 for the first time since October 1997! The Dow got down to just about 180 points above its September low and rallied sharply, so perhaps that was a successful test there.
A review of my personal board showed that almost all the tech stocks I follow had tremendous reversals today, led by QLogic which went from under 39 to nearly 43, up 3.40. That was the point leader. Other stocks of note were Nvidia up 2, Broadcom up 1.90, Brocade 1.58, Qualcomm 1.20, IBM 1.72, Emulex 1.27, and Checkpoint, a low-priced leader today up 1.17. Microsoft and eBay, which had led the market over the last couple of weeks, were a bit weaker today, although they did come way off their lows and we’ll see if they follow through tomorrow.
With the indices closing at the highs for the day going away on heavy volume and with a big reversal, there’s a strong chance the market can even gap up tomorrow. We’ll have to see how the futures are overnight. This does, however, augur well for at least the possibility of an important short-term low and potential follow up rally over the next several days.
Today the NDX closed just beneath the highs of last Friday morning. We’ll see if we can take that out for starters. The S&P 500 has additional resistance to overcome as well and both of these indices obviously have come sharply higher off their lows and may be subject to at least some pullback or consolidation.
Right now support on the Nasdaq 100 is about 1000, and on the S&P 500 it’s about 905. Let’s see if they hold tomorrow. Today is as good a day we could have hoped for coming off a potentially significant low.
Good trading!
Harry |
