THE MARKET:
The nice rebound off session lows kept the consolidation alive and keeps the prospects for another push higher in good shape. Things were dicey in the morning session as SP500 undercut the neckline of its head and shoulders base and then tapped at the 200 day SMA. A solid afternoon rebound that held to the close despite headwinds from airplanes in Washington airspace and lower gasoline inventory builds stabilized the base. NASDAQ's rising volume did not hurt either, though volume remained low overall just as it should in a lateral consolidation. What we do note is that volume, though low overall, is rising each session on NASDAQ as it did before the market started higher off the 2005 lows. That is a significant common item between the that move and what we think is setting up to be a continuation of that move. Getting close to the next break higher.
MARKET SENTIMENT
Very few are calling for an upside resolution to this current lateral move. There was some distribution Tuesday, but Wednesday was very positive action with a solid recovery and rising NASDAQ trade. Nonetheless the views remain negative as they did in early 2003 when the break higher and rally off the October 2002 low was written off and a resumption of the bear market was the common belief in the market. The market can always prove you wrong, but the pessimism is dovetailing with the generally positive price/volume action in the indices.
Bulls versus Bears: Bulls: 43.5% last week, down from 44%. Bears: rose to 30.4% from 29.7%. That puts bears right at the level hit in August 2004. That August date is important because that is when NASDAQ, SP500, SP600 bottomed and rallied to the end of the year.
VIX: 14.45; -0.46
VXN: 17.87; -0.24
VXO: 13.78; -0.39
Put/Call Ratio (CBOE): 1.01; +0.15. As a sign of the pessimism, put activity ratcheted higher on a day where the market dipped and rebounded. Very quick to pull the downside trigger, keeping the index at a more speculative level.
NASDAQ
A run lower through near support and then an about face to close positive, holding the range and sporting higher reversal volume. Not bad action at all.
Stats: +8.78 points (+0.45%) to close at 1971.55
Volume: 1.766B (+8.49%). Volume was still below average as NASDAQ reversed and posted a gain. It was not far from average, however, and the rising volume was a very good response to the modest distribution Tuesday. The action tells this story: stocks sold off out of the lateral consolidation, but when they did, there were shorts covering and buyers buying at these lower levels. That ran stocks right back up on rising trade. That shows there is reluctance to try and sell them off at this level given the action of late. That is a good indication of a floor being put in here for the next bump higher in this recovery off of the April lows.
Up Volume: 1.126B (+714M)
Down Volume: 588M (-525M)
A/D and Hi/Lo: Decliners led 1.04 to 1. Breadth was narrow as the overall index was slower to change. NASDAQ 100 showed a better percentage gain than overall NASDAQ, and that accounts for the lower breadth as there are a lot more smaller cap techs than larger cap.
Previous Session: Decliners led 1.97 to 1
New Highs: 45 (-2)
New Lows: 95 (-9)
The Chart: The Chart: investmenthouse.com^ixq.html
NASDAQ dipped below the 18 day EMA (1955) down to 1943 on the low, undercutting the recent lateral range. It closed strong, with a run back up into the lateral consolidation as volume recovered with it. Very good action in the pattern: the dip acts as a shakeout where the weaker holders sell out, and then the rebound shows buyers ready to cover or take some longer term positions. Multiple positives in the move. That keeps it in the consolidation range and still looking at taking on the layers of near resistance: the 50 day EMA (1982), the 200 day SMA (1994), and the early April high (2022) are all ahead. This price/volume action indicates it is going to attempt a run at those levels.
NASDAQ 100 posted a 0.6% gain versus NASDAQ's 0.4% move. That, along with the breadth, shows most action in the large cap techs, and that often is more of a sign of short covering than longer term buying. Given the recent action the past few weeks, however, that is not really the issue. The point is that the shorts did not want to stay short on this dip lower and used it to exit. Combined with the other price/volume improvements since the high volume flip-flopping at the April low, the prospects for the upside still look decent.
SOX sold off as well, but it too rebounded to hold the 18 day EMA (394.42) on the close and within its own lateral move the past week. No picture of strength, but the action suggests continued improvement and a continued set up for a further move higher.
SP500/NYSE
Similar to the other indices, SP500 sold off in the morning, tapping the 200 day SMA on the low, and rebounding to hold the recent lateral consolidation.
Stats: +4.89 points (+0.42%) to close at 1171.11
NYSE Volume: 1.413B (-3.91%). Volume failed to climb as SP500 rebounded Wednesday, and that was the blemish in the action. The leader of the rebound should be showing a big better price/volume action, but NASDAQ has taken over those reigns for now.
Up Volume: 1.05B (+707M)
Down Volume: 723M (-789M)
A/D and Hi/Lo: Advancers led 1.28 to 1. Very modest breadth, but breadth often lags as the overall index on a rebound session. Moreover, since the gain was not solidified until the close, the lagging breadth is a bit more understandable.
Previous Session: Decliners led 2.07 to 1
New Highs: 66 (-2)
New Lows: 68 (+28)
The Chart: investmenthouse.com^spx.html
SP500 tapped the 200 day SMA (1158) on the low and that sparked a recover that took it back above 1164 and the 18 day EMA (1166). Early in the session SP500 held 1164 and bounced but then a broke below that level midmorning, even before the quick dip lower on the news of the aircraft in the DC no fly zone. That gave the whole session a pretty bad flavor at that point, but a solid afternoon rebound showed the shorts did not want to hold positions at that level. Still working in the lateral range from roughly the 18 day EMA on up to the 50 day SMA (1178). That is the near term level to beat, but the early April high (1192) is the real meat and potatoes. That level would represent a higher high and break the 2005 downtrend.
The small caps ran with the pack Wednesday as they too tested near the 200 day SMA (307) on the low and then rallied back to close above the 18 day EMA (311). It is holding the lateral move between 310 and the 50 day EMA (315). It is still below the late April high (313), and has a long way to go before it clears the early April high at 325.
DJ30
The blue chips dipped as well and rebounded along with the rest of the market. Held 10,250 on the close and just above the 18 day EMA (10,290). The range is marked by 10,250 on the low and the 200 day SMA (10,385) on the high (that also marks the late April/early March consolidation lows). That is thus the key point for NASDAQ to break through on the rebound attempt.
Stats: +19.14 points (+0.19%) to close at 10300.25
Volume: 215 million shares Wednesday versus 235 million shares Tuesday.
The chart: investmenthouse.com^dji.html |
