THE MARKET:
The low volume rise Monday set up a fall. The market was moving laterally in a decent fashion, but NASDAQ and the other indices got a bit inflated on no volume Monday. Tuesday stuck a pin in that action. It was not a total deflation. Volume was up but still well below average as SP500 found the 18 day EMA and NASDAQ held its late April peak on the close. Hardly stellar action but no breakdown either as they managed to hold onto their recent ranges, SP500 holding the neckline to its head and shoulders pattern.
The hedge fund story has not worked its course yet. All is speculation right now, and it will have to be resolved in one form or another. Thus far the action remains decent but the indices cannot give up much more ground and still maintain the current consolidation attempt of the bounce off the lows in late April. Time to do something positive.
That duty rests squarely on the SP500, the leader in this rebound. A good short double bottom off the August 2003/August 2004 up trendline, a break higher, and then a lateral move to test the break above the key resistance at the head and shoulders neckline. A hard drop Tuesday took luster from the lateral consolidation that was underway. As noted above, this is the point where the move has to hold. SP500 and all of those pushing the large caps the past several months need to stop talking and step up.
MARKET SENTIMENT
Pessimism certainly remains at generally high levels. It was already ratcheted higher and now the worries about the hedge funds adds some more spice. Still not at extremes but a lot of giving up on the market after almost a year and on-half of lateral, up and down movement.
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: 14.91; +1.16. VIX is starting up off of the 200 day SMA after holding at the late March highs, making a higher low. Well below the recent highs near 18, but just a short run to that level.
VXN: 18.11; -0.26
VXO: 14.17; +1.56
Put/Call Ratio (CBOE): 0.86; +0.02
NASDAQ
A solid 1% loss as volume edged higher, but held above support on the low and closed above the late April peak, keeping the attempted higher high in place.
Stats: -16.9 points (-0.85%) to close at 1962.77
Volume: 1.628B (+7.79%). Volume rallied as stocks sold, a distribution session, i.e., higher volume selling. Still well below average so not a major return to selling. Moreover, Friday and Monday volume was so low it would have been hard to keep volume that low regardless of upside or downside action.
Up Volume: 412M (-539M)
Down Volume: 1.113B (+584M)
A/D and Hi/Lo: Decliners led 1.97 to 1. Pretty harsh downside breadth as NASDAQ faded from its Monday test of the 50 day EMA. Not outrageous but showing some more strength on the downside than the modest upside Monday.
Previous Session: Advancers led 1.72 to 1
New Highs: 47 (-5)
New Lows: 104 (+29)
The Chart: The Chart: investmenthouse.com^ixq.html
Gapped lower from Tuesday's test toward the 50 day EMA (1982). It tapped toward the 18 day EMA (1954) on the low and rebounded to cut its losses, though just by 5 points. NASDAQ remains in its downtrend below the 50 day EMA, and this is thus a critical upside test for it. The 50 day, the 200 day SMA (1993), and the early April high (2022) are lined up one after the other to push the index lower. It managed to recover and hold the late April high at 1962, the 'hump' in the short double bottom in the last half of April. That means it is still working on the handle to that bounce and is still in the game for a move higher.
NASDAQ 100 showed similar action, tapping the 18 day EMA on the low and recouping some of its losses. It too is forming a handle to its short base, still working to set up another run after the initial move off the 2005 lows in late April.
SOX fell right back to the 18 day EMA itself, showing much of the same action as NASDAQ though at a much lower level. Trying to form a higher low here and continue the move off the recent low at the bottom of the range at 380.
SP500/NYSE
Could not move through the 50 day SMA and then rolled over and fell to the neckline of its recent head and shoulders breakdown. Volume was up as distribution raised its head again.
Stats: -12.62 points (-1.07%) to close at 1166.22
NYSE Volume: 1.471B (+7.94%). Volume rose about the same as on NASDAQ but still well below average. Distribution as on NASDAQ, and with the point loss it was a bit more significant than.
Up Volume: 343M (-1.101B)
Down Volume: 1.512B (+1.115B)
A/D and Hi/Lo: Decliners led 2.07 to 1. The small caps lagged, but all were lower, and that pushed downside breadth. Still below the Monday and other recent upside breadth readings.
Previous Session: Advancers led 2.14 to 1
New Highs: 68 (-34)
New Lows: 40 (+11)
The Chart: investmenthouse.com^spx.html
The 50 day SMA (1178.57) again stalled out the move and SP500 rolled over hard. It managed to hold the 18 day EMA (1165.76) on the close after tapping the head and shoulders neckline (1164) on the low. This is a key test for SP500 as it attempts to hold the break back above this level and make a higher low. The action was not great but it was not a breakdown. It is down to the lick log, i.e. it needs to hold here and show better action at a minimum.
The small caps led the selling as they too dumped down to the 18 day EMA on the close. That put them just below the late April high (313) but holding some support at 110. As with SP500, this is where it has to show some upside if it has any still in it.
DJ30
The blue chips turned back from the 200 day SMA (10,383) and managed to hold just above 10,250 and the late April high (10,263). DJ20, the transports, are holding the 200 day SMA. Good point to make the rebound if it is going to do it.
Stats: -103.23 points (-0.99%) to close at 10281.11
Volume: 235 million shares Tuesday versus 204 million shares Monday.
The chart: investmenthouse.com^dji.html
WEDNESDAY
All you heard about on the financial stations was how bad things are. The hedge fund issue dominated the news but stagflation was resurrected again. We are not wild about what we see in the economy; that demand leading supply is causing a lot of problems with inflation, and that can be the root of many evils. We even wrote about stagflation earlier in the year when we first saw really endemic inflation. This here is not stagflation. It is not a great trend we see, but it is a long way from stagflation.
CSCO beat the street after hours and was higher, but not enough to make a difference. Indeed, CSCO won't make a difference to the market Wednesday, because its paltry earnings report, even though it beat the street, is not going to change the fears of oil, the Fed, and now a hedge fund implosion. Those are some major headwinds, and they make this rebound look quite feeble as it attempts to hang on.
Thus we approach with caution. We think the Tuesday drop was still part of the consolidation of the recent move off the lows and is still working to make another move higher. The market is going to have to look beyond the current issues, what it typically does when it is ready to move, and it was not doing that Tuesday. At the same time it did not clearly roll over. Looking for some more downside but then a reversal to start the next attempt higher. |
