This stolen from the "Angels of Alchemy" thread
The Realist Report
Well, the doom & gloomers are upon us like rats on fetid CheezWhiz, but I'm not about to run and hide my can.
Let's crank out some numbers here....
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NASDy by da Numbers
1) A 15% correction takes us to 3644. We hit it and it sits 22 pts down from here.
2) The TA crowd says 3582 closes the gap; that's 81 pts down from here.
3) There's actually a blip in December offering weak, but potential support, at 3571. That's 92 points down from here.
4) Closing the final May gap in NASDy would take us to 3205, or 458 points down from here.
5) Jack, whose expertise I admire much (he called the post Mem day rise beautifully) came up with the number 3341. I'm not sure what that represents; probably a moving day average. But that's 322 points down.
6) Several folks point to the fact that next week offers no sector giants reporting earnings. True enough. But earnings runs are 3 weeks long and CSCO (8/7), SCMR and others fall in this range. Recent experience suggests CSCO's uplift should occur by Thursday, at latest. As well, QCOM has sumpin secretive in the works for Monday 11-ish (see 2MAR$ post on Stan's thread.) Other initiatives by other sector giants can also help if they happen.
7) It's a general rule of thumb that Tues-Wed of finals-wk QPs usually offer sumpin to the upside and there's a few good ones.
8) I read a report from Japan indicating that the market there sucks bad enough that brokers are advising an adjustment to portfolios that shifts 3% more into NASDy, in August. That's bigger than it sounds and foreign infusions of cash are helpful & bullish.
9) We could speculate forever and never be exactly right. But I've been all over the Net, digging tonight. Here's my overall take on things...
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Preliminary Analysis
The weakness of semis began the week's carnage; that it recovered a tad Friday suggests that sector is in wait-and-see mode.
Future earnings forecasts from big names, and a few current under expectations, added fuel to the fire. However, common sense says the biggest can't sustain high growth rates forever. Thus, it is more important overall to watch the emerging leaders for signals.... I mean, how far does IBM & XRX really move the mkt these days?
Telecoms helped finish the blaze, led by the unexpected NOK surprise.
But the economic reports were the biggest culprits of all. First, unemployment came in low and consumer confidence high, causing edginess. The GDP (which I admittedly failed to factor in previously, took the rest of the bloom of the rose, leaving us with a huge thorn... the FOMC again.
Now my barometer (using the DOWdy to predict the NASDy)says Monday can move within a 120 point range and close with no change at all. Or, we could drop as far as 150 pts, to 3513. The barometer can usually pinpoint better, but anything near 10500 on the DOW is a neutral reading that allows great leeway to mkt psychology.... in essence, it too signals a wait-and-see attitude.
I see no circumstance that would cause us to close the bottom NASDy gap anytime this year, period. Fahgeddaboudit.
Putting up a 2 year chart of NASDy, one can see a clear bubble that began Nov 99 (Feb-March was a bubble's bubble, like the head on a boil). If we draw a center line through August 98-October 99, a more sustainable rate of index growth, where would we be at now? About 3400... check it out yourself:
bigcharts.com.
Though it doesn't sound fun, it's the healthiest move that could happen to NASDy. And there is substantial, solid support at 3400 from a TA perspective. For that reason, while Jack's 3341 could prove to be an intraday low, I'm convinced we won't close below 3400.
But those low numbers are not for Monday; those are the lowest lows possible in August. And the most likely day for that bottom is August 10.
Losing 266 points in 9 trading days is nothing to get spooked about.
Now I know I was overly bullish recently, as I looked for a fast NASDy rebound... though I was quite clear that I'd do little or no trading this week, precisely because of a foreseen seasonal selloff. My upside forecast was wrong, period.
And let the other analysts decipher all the precise meanings of this or that... the fact is, this was nothing more than a seasonal selloff, coupled with the 75% chance of FOMC action on 8/22.
Despite moments of daytrading unease, there was mostly commonsense trading going on. Clear signs exist of institutional selling, evident in rising volume from Tuesday on (and I've noted before that institutions and funds do major sells & buys in the final 5 days/first 2 days of most months.
I like it just fine; a falling mkt presents us with nice bargains. But commonsense says the institutions will also see and buy those bargains. Making money next week means buying the bigcaps the funds will be buying.
Noting the prevailing factors, I offer the scenario you can pretty much count on....
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Final Analysis
My guide to the next six months
The wait-and-see mode rules Monday. To the upside, I doubt we'll break 3700 and a break of 3756 is impossible. To the downside, we will not close the gap... 3600 should hold (If we leave behind a gap that's been narrowed to 20-30 pts, that's no biggie; NASDy has a few at various bottoms over the years.
If I'm wrong, when we hit 3582, I'd sell fast, because tests of 3500 and maybe 3400 will follow. And I remind you, 3663 to 3582 is a mere 81 pts. Not to worry. And a break of 3740 to the upside would be fun.
But 3600-3725 is the range I expect Monday holds. It will be mostly a boring day ... look for semis like AMD and INTC and AMCC and AMK and PMCS to pick up small gains for you. NEWP too.
A flurry of excitement will exist around QCOM's announcement. I think most of the wireless sector will have some upside Monday: QCOM, PUMA, SVNX, ANCC and AETH should each offer a little; maybe 4-10%. AVOID TNSI!
(You'll also see CRIO, BWAY and NAVI move up a hair, but it's a false move by CRIO; it's bottom will be a bit below 14, so don't play this ASP sector more than Monday)
And what's everyone waiting for Monday? Tuesday morning econ. reports... Personal Income (8:30) and NAPM (10:00)numbers in particular. I expect no surprises there and expect to have a mildly pleasant Tuesday as a result.... perfect for final week QPs.
Wednesday numbers on less significant things, like New Home sales, come in at 10 am. Again, I expect a largely flat mkt, with QP finals doing well again.
Thursday might be the best day of the week, because no reports of note and CSCO should be moving in advance of earnings the following week. BUT EXPECT A LATE SELLOFF!
Friday morning brings Non-Farm Payrolls, Hourly Wages, and the Jobless Report. All at 8:30... and these are the ones that can move the mkt.
It's pretty simple really, what to expect. Mixed results. A day up, two down, two up, whatever. The econ. reports will not reassure the interest rate increases are done; nor will they provide consistent, compelling evidence of an economy too hot to handle.
The market has already fallen a little too far to price in a 1/4 pt increase from Uncle Algae. If we price in a 1/2 pt, we'll go to 3400. If we settle on 1/4 pt, we should rally back to 3900.
So where is the bottom? In all likelihood, it's the intraday low we hit this coming Monday. But both Fridays... the 4th and 11th present us with the risk of something lower.
Personally, I expect a mild trend upward through mid-Thursday, then a selloff in advance of the econ reports Friday. Whatever happens Friday will carry through to Monday.
After that?
Earnings reports in the next wk include CSCO (AH Tues), AMAT & UNWR (AH Wed), INIT (Thu, during), and ADAP/ARTT/DELL/ICGE (AH Thu). Those are the only ones big enough to cause sector turbulence; CSCO's the only one that can move the entire mkt to the downside.
So if you're looking for a lower low than intraday Monday, there's a chance, with really bad numbers, to find it Friday the 4th (doubtful), on Wednesday the 9th (if CSCO's numbers are miserable) or on Friday the 11th.
The last holds the greatest threat, because the PPI comes out at 8:30 that Friday. Typically, that's the last piece of the puzzle as to what the Federal Fandancers are gonna do.
So my final analysis for the second week of August goes like this....
As I pointed out, Friday the 4th will define Monday the 7th... I'm guessing both will be down. Look for Tuesday's CSCO action to be predictive of Wednesday. I'm expecting up days on both because, despite acquisitions, CSCO is the biggest player in the hottest growth sector on the market for some time to come.
Thursday the 10th, due to the selloff in advance of Friday's PPI, will be the closest test of this coming Monday's low (pick a number between 3600-3700).
If you want to be absolutely safe, leave the market at 10 a.m. Thursday the 10th.... because terrible PPI numbers would take us to 3400 within 2 days. However, I'm not expecting that.
As of now, I'll be buying in the final hour of the 10th, snapping up bargains galore. Because all the PPI numbers will do is convince the doubters what most realists projected all along.
The Federales will give us 1/4 pt on August 22, at worst. Because it's a Presidential Erection Year. Their hands are tied till post-election. And because the impact of rate hikes don't fully hit home till 6 months later, they are very unlikely to risk another 1/2 pt in August... because the May/June rate increases will be hitting home in November/December. A 1/2 pt in August would ruin their intent of a soft landing, and hand us a recession in February.
(In fact, the cumulative impact of even 1/4 pt means post-election turbulence from mid-November through mid-February ... it'll be more fun playing the horses than the market next winter ... but that analysis is for later in the year. Let it suffice to say that mid August to mid November provides us with best bull we'll find till Lincoln's birthday.)
So after the selloff on Thursday 8/10, expect a weeklong rally, a consolidation for 3 days before FOMC, another strong rally after that, and a general upward trend till the final week of Sept. From there, a mild consolidation into October - caused more by earnings warnings and earnings than any Fed threat - is likely.
That leaves us with a rally from 10/13 through 11/7 or 11/8 (Erection Day & day after). The FOMC mtg on 11/15 puts the kibosh on the following week.
The two weeks after that permits a moderate holiday rally before the FOMC mtg on 12/19 cools most of December, with a mild rally from 12/20-1/2, dimmed by a few earnings warnings.
Not only am I expecting a January correction from a historical perspective and from the perspective of earnings season, but last May/June interest hikes make it a certainty. Most days in the last half of January and from mid-Feb to mid-March should permit brief rallies, however.
Beyond that, there's no point in projecting, other than to say that the greatest risk to this long and historic market run should not come till October 2001... but the reasons for that would take another chapter to explain.
What Will I Pick in the Coming Week?
A few Bigcaps, a few Big QPs, but mostly my nose, which is Bigger.
All that institutional selling last week means too much cash sidelined, so from Monday lows to mid-afternoon Wednesday, they're going after bigcap leaders. And QPs, per usual, will offer decent play through the same period.
In fact, the rest of my weekend will be spent reviewing the rally of post Memorial Day and the early July rally, to better define those leaders.
I hope you do that too. Earning money is kinda fun, don't you think?
Not as much fun as a padded room full of penguins, but close. |
