THE MARKET:
SP500 went from leader to goat in a few short sessions last week. It had held up the best off of the recent lows, showed the best price/volume action, and delivered the best follow through. It looked ready to break back up to the April high, a very good rebound that would have set up a very nice test. It has gone straight to jail, turning over at the 50 day MA, a 'usual' resistance point that was further braced by some former price points from November 2004, January 2005, etc.
In short the large caps are already testing the April lows and the August 2003/August 2004 up trendline that held in April. The rebound and follow through off those April lows has run out of gas at the 50 day EMA, the same moving average that stalled it out in April. It was not all carnage Friday, however, as SP500 managed to rebound off the lows, well above the near up trendline that held in April. There is life there as it makes this test, something we were looking for to set a better bottom, but given the truncated rise preceding it the odds are lower.
MARKET SENTIMENT
Bulls versus Bears: Bulls ran up to 44.2% last week, up from the 43.5% level a week earlier. Bears fell to 28% after hitting 30.4%. That was the highest bearish level since August 2004. It quickly turned when the market bounced off the April lows. That was the best showing since last April and we would have preferred more closure. It was enough to help spark the rebound, but it remains to be seen if it was enough to hold it together.
VIX: 16.32; +0.2
VXN: 18.41; -0.4
VXO: 16.71; +0.97
Put/Call Ratio (CBOE): 1.02; -0.08. Lower but holding at a historically high level. Lots of action in the puts as the market continues to struggle. This is typically an indication of excessive downside speculation, but the overall put/call ratio of all option indices, while high, is not showing the frequent closes above 1.0.
NASDAQ
Spurred by Dell's earnings, NASDAQ enjoyed a solid gain, led by the large cap techs. Volume was up but it was still unable to clear the 2005 downtrend.
Stats: +12.9 points (+0.66%) to close at 1976.78
Volume: 1.894B (+5.57%). Rising above average volume once more as NASDAQ engages in the same price/volume action as in late April where trade rose each session, up or down. Some accumulation Friday as it continues to try and set up a breakout move.
Up Volume: 1.32B (+469M)
Down Volume: 535M (-380M)
A/D and Hi/Lo: Decliners led 1.26 to 1. Up session but negative breadth. That points to a large cap move (Dell and friends), as well as short covering.
Previous Session: Decliners led 1.69 to 1
New Highs: 136 (+83)
New Lows: 132 (+46)
The Chart: The Chart: investmenthouse.com^ixq.html
NASDAQ stayed alive again, gapping higher moving above the 50 day EMA (1981) intraday, but when it got near the 200 day SMA (1995) it fell back and closed below that level once more. It was no clear-cut session either. NASDAQ was up almost 30 points and just about gave it all back before the last bounce closed it with a passable gain. When all was done the action simply continued its lateral move of the past 7 sessions as it tries to form its handle to the double bottom. It is showing relative strength because it is hanging on when the others cannot. The question is whether it can lead or if the other indices' weakness will drag it down with them. We have a feeling this is a short term move for NASDAQ given the Fed still hiking and tech stocks quite adverse to rate hikes (growth stocks don't like rate hikes).
Unlike NASDAQ, the NASDAQ 100 large caps cleared the 50 day EMA on the close though they still could not clear the 200 day SMA (1484), a necessary point on the way to the April high at 1500. Looking better but as noted, much of this also had to do with short covering on some big tech names that had been trending lower.
Dell's success was viewed as a positive for the semiconductors, but it could be a false positive as we don't think Dell's results really indicate any growth in the chip sector. Lots of volume moves and rebounds in serious downtrends, but after a few more sessions we would be surprised if they don't run out of gas and provide some downside opportunity.
SP500/NYSE
Sold off on rising volume, closing below the 200 day SMA but managing to recoup some losses after waving at the up trendline on the low.
Stats: -5.31 points (-0.46%) to close at 1154.05
NYSE Volume: 1.724B (+9.56%). Strongest volume in a week, and it occurred as the large caps sold off, undercutting the 200 day SMA. Volume picked up after it sold below that level as the shorts stepped in and covered. It was not enough to sustain the move to positive in the last hour, but there is always promise when an index tests toward important support and manages a bounce. It closed lower, however, and the rebound did not convert the session into a positive. It was distribution.
Up Volume: 587M (+202M)
Down Volume: 1.565B (-38M)
A/D and Hi/Lo: Decliners led 2.07 to 1. It was worse, near the Thursday levels, before the late bounce. Not much improvement, however.
Previous Session: Decliners led 2.54 to 1
New Highs: 27 (-41)
New Lows: 105 (+28)
The Chart: investmenthouse.com^spx.html
The large caps sold to 1146 on the low, undercutting the 200 day SMA (1159) but holding well above the August 2003/August 2004 up trendline (1140). More distribution, and three high volume selling days in the last four sessions often means even more selling to come. It is still in the downtrend, having failed to take out the 50 day SMA (1176) on the last bounce and made a lower high at the same time. Further, it has all but given up the rebound attempt that started the last trading session of April. That is downtrend material. When you add the overlay of the Fed tightening, it is not a great picture. There is conflict, however, as the up trendline had strength in April and still looks as if it has some now. This is a key, key test approaching as SP500 tests that trendline and the recent April lows at 1136. Of course if the trendline holds it will not make it to those prior lows, and that will be a more bullish indication.
The SP600 small cap index was a downside leader Friday (-0.9%). It also undercut the 200 day SMA (307.68) and closed below that level. It is holding above the late April low (298.73); as with SP500 that is the key upcoming test as the small caps test the April low faster than we wanted.
DJ30
DJ30 failed at its neckline to the head and shoulders pattern (10,380) early in the month and is returning to the recent lows at 10,000. It came close on the Friday low (10,075) and rebounded, but we do not believe this test is over. A full test of 10,000 will show what DJ30 has in it. The problem with the industrials the past few months is that it has one component every few sessions that has some bad news. GM, WMT, AA. It is like being pecked to death by chickens.
Stats: -49.36 points (-0.48%) to close at 10140.12
Volume: 258 million shares Friday versus 249 million shares Thursday.
The chart: investmenthouse.com^dji.html |
