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Bears monitor and "old friend" in broken trend

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In today's market monitor I profiled a bearish trade in the NASDAQ-100 Index Tracking Stock (AMEX:QQQ) $22.00 +0.59% near current trading levels.

One thing I didn't see in last night's Index Trader Wrap was something we had discussed in an earlier update, which was to monitor and "old" upward trend for future resistance. It wasn't until after I profiled today's bearish trade entry point near $22.19 that I saw this "old" upward trend coming into play at current levels.

NASDAQ-100 Index Tracking Stocks (QQQ) - Daily Interval

In a prior bearish trade in the QQQ from 09/12/02 near $22.97, a bear was monitoring an upward trend for support as a "first hurdle" to a trading target of $21.35, just below our current 38.2% retracement. We wanted to monitor that "old" trend once it was broken to perhaps serve as resistance on a rally.

I didn't note this in last night's update, and found it only after today's bearish profile. I'm still rather "cautious" regarding bearish entries, but look to leg back into the QQQ with partial positions from the bearish side, using the downward trending 21-day SMA, broken trend and 61.8% retracement as levels of resistance. Target for a bear becomes $20.20, with "first hurdle" for the downside being $21.44. Traders may look for similar action from the oscillators (MACD and stochastics) to become similar to prior bearish action point.

Today's economic data has bullishness carrying over this morning with minimal weakness found in the various sectors on total. The Gold/Silver Index (XAU.X) 67.72 -6.39% is getting hit lower again today after "gold hedger" and sector bellwether Barrick Gold (NYSE:ABX) $15.57 -12% warned that FY02 EPS will be $0.33-$0.35 instead of prior guidance of $0.42-$0.47, citing lower than anticipated grades and recovery rates, resulting in lower production and higher costs.

The Networking Index (NWX.X) 93.37 -3.94% is sinking to yet another 52-week low on weakness in Cisco Systems (NASDAQ:CSCO) $11.62 -2.75% after Goldman Sachs said it continues to believe that CSCO's October quarter will be more difficult than previous quarter due to weak enterprise spending (especially in Japan and Europe). Those comments also found losses building in networking components Alcatel (NYSE:ALA) $2.51 -8.72% and Juniper Networks (NASDAQ:JNPR) $4.82 -5.67%.

Sector strength is found in the home construction sector as depicted by the Dow Jones Home Construction Index (DJUSHB) 313 +4%, after this morning's 10:00 AM release new home sales which came in above consensus at 996,000 and grew 1.9% from July's revised lower 977,000 sales. Economist's were expecting 985,000 new home sales for August.

Market breadth is decidedly positive in the first hours of trading with gainers outnumbering advancers by a 3 to 1 margin on the NYSE, and NASDAQ breadth is positive, but at a lesser degree with 4 stocks advancing for every 3 decliners.

New highs versus new lows is strengthening at the big board with 35 stocks hitting new 52-week highs versus 32 stocks at new lows, while NASDAQ continues to struggle with just 12 stocks hitting new highs versus 71 stocks at new lows.

Jeff Bailey
Senior Market Technician
Option Investor


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