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Strategies & Market Trends : Short Selling, Dark Side, Bubble Busting Laboratory
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From: russwinter10/28/2005 8:45:01 AM
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One driving factor behind the Nasdaq's slide yesterday was the break of the 200-day moving average support in the Semiconductor Index (SOX). The SOX first dropped down to its 200-MA on October 12, but it rapidly bounced off of it. Five days later, the SOX washed out the bears by trading well below its 200-MA on an intraday basis, but reversing to finish the day above it. The result of that action was the formation of a bullish "hammer" candlestick, but the pattern failed to reverse the October downtrend. Yesterday, for the first time since May 12, the SOX closed below support of its 200-day moving average. Because the semiconductor stocks are so heavily weighted within the Nasdaq, the 2.7% decline in the SOX acted as a boat anchor on the Naz. The daily chart of the SOX below illustrates the break of key support. Also notice that the sector closed at its intraday low:

Needless to say, yesterday's action in the SOX does not bode well for the Nasdaq, nor the entire broad market for that matter. After trading back above its for only six days, the Nasdaq Composite also closed below support of its 200-day MA as well. Prior support becomes the new resistance after support is broken, so expect the 200-day moving averages to generate strong resistance on any subsequent rally attempt in the SOX or Nasdaq.

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