Tonight I'm going to spend some needed time on the NASDAQ's market internals, and this is going to take up some precious time. But time I think well spent.
So let's cut to the chase in get down to business.
Here's a quick look at today's closing internals, and hourly price action.
Market Snapshot / Internals - 02/26/04 Close
For a second-straight session, advancers were able to outnumber declining issues. During the last hour of trade, we might note that we saw a pretty good build of new highs, while during the mid-part of the session, we saw more of a slow and steady build. Is this a sign of eager bullish anticipation, or a late session bout of short covering, where some aggressive bears may have shorted some stocks that looked overextended and had just set a new 52-week high at this morning's open, and thought that we might see a good washout to the downside in today's trade, on the weaker January durable goods data? We'll never know, but looks like some sign of bullish leadership presenting itself late in the session.
NASDAQ Composite Index (COMPX) - Daily Intervals
I've placed BLUE retracement brackets on my current study period, where I think we are seeing similar technicals that were present from mid-July to mid-August of last year. Both declines have seen a very identical 7.6% decline. Both declines saw the very broad NASDAQ Composite fall below its 21-day SMA and 50-day SMA, where we now look for strength back above these short and intermediate-term moving average, while at the same time looking for support above Tuesday's intra-day lows.
If there is one difference I do see today, compared to the July- August decline of last year, is with respect to the downward trends. I "cloned" the PINK downward trend from the then 07/14 high to the 07/31 relative high, and placed it on the current NASDAQ Composite high, where we can make a comparison to the current downward trend in RED, where this comparison gives the observation of a steeper, or greater velocity of decline, that a bullish rally will have to face.
I've used retracement brackets in a conventional manner, where anchor points of my study periods are from a high, to a pullback low.
I would have to say the mid-August advance was rather powerful as the COMPX NEVER closed back below on of its retracement levels, after moving above one of the levels.
I again added the observation of 2,000 and 2,100 levels, where the pullback test did find support at 2,000. A good test for further strength looks to be a bullish break of 2,053, and from there, strength back above 2,100. It's notable how the CURRENT retracement, even though anchored at a low of 1,991.05, would have had the 61.8% retracement being some type of key level of resistance at 2,091.64 before the recent low was found. I would have to think that a bullish trader/investor currently playing this bounce, and using the NASDAQ Composite Index as one of their guides, would think a MAX bounce target from here would be that 2,090-2,100 area.
That's the bullish view. Now what is a bear thinking? He/she has got to be thinking about that 2,000 level as support, and probably looking over his/her shoulder at the 2,100 level as a current risk assessment level.
What may also be important to note is the upward trend I've shown in GREEN, that does look to be in play. If measured from the October low, this trend is nearly 5-months old, while the downward RED downward trend is considerably younger at just 5- days old. Older trends should be deemed more powerful than younger trends until broken.
So that is a quick look at the OUTSIDE of the NASDAQ Composite. I want to also look for SIMILARITY or DIVERGENCE to my test period, but now look at the INTERNALS.
NASDAQ Market Internals - Comparison to mid-August 2003
Due to vertical axis limitations, I've split my internals study period into two parts, where the thick BLUE horizontal line divides the then and now study period. Row 138 is the beginning of my benchmark, where the first chart of the NASDAQ Composite, would have July 31, being the attachment of downward trend, where current study period (row 278) and February 19, is also the attachment of current downward trend.
What I now focus on is internals at the COMPX lows (rows 144 and 280).
Note how SIMILAR both the NDX and COMPX bullish % data are (columns G and H). The BIGGEST concern I have for a BULL right now is that the NDX and COMPQ bullish % are now in columns of "O" and not "X" as they were in mid-August! I've tried to color code my actual numbers in the above table as RED being down, and GREEN still being up. If you look at www.stockcharts.com's FREE bullish % charts, you will see this more clearly for the bullish % data.
Note that today's trade did see the NASDAQ-100 bullish % ($BPNDX) slip further to 61%. This is DIVERGENCE to the past, and something I/you/we MUST be alert to.
This now has me focusing even MORE on the NH/NL indicators!!!!
A healthy/bullish market CONTINUES to REBOUND from a DECLINE when BULLISH LEADERSHIP is present. The measuring of NH/NL indications is a GREAT tool for measuring signs of continued BULLISH leadership.
In ratio format as I have calculated, today's trade did see a JUMP in the DAILY NH/NL ratio (column AD), the 5-day average (column AE) shows a lesser rate of decline, but still hasn't turned up and remains below the 10-day average (column AF).
Look at row 148, where I've boxed in BLUE how the 5-day NH/NL ratio edged above its 10-day NH/NL ratio, and perhaps gave BULLISH LEADERSHIP confirmation to the reversal.
Current analysis is that we have NOT seen such confirmation, so BULLS still need to be CAUTIOUS!
Do you sense, like I send, that the recent PRICE LOWS found in the NASDAQ Composite and NASDAQ-100 become an important technical level for price support? This "sense" is based purely on observation.
PRICE always matters the most, so this is the main area of a trader/investor's focus right now.
However, the internals give VERY important insight into the HEALTH of the market. I can NOT say at this point that the current INTERNALS are showing health, and at this point must operate under the assumption that what we're seeing in the NASDAQ is a "relief bounce" and not necessarily a resumption of STRENGTH.
Certainly there are some signs of stability presented outside the bullish % indications, but 2-days of NASDAQ gains shouldn't be considered an all out super ludicrous rebound in the making.
I would still be more inclined to trade bullish, and using past history as a guide. But understand the need for a stop, should the INTERNALS not confirm the current PRICE bounce that looks to be underway.
Pivot Analysis Matrix -
I've highlighted in PINK some of today's lows/high for the major indices that I want to quickly discuss.
The INDU violated its WEEKLY S1 by about 10-points, then rebounded, but once again seemed to lag, or doesn't show the type of leadership it had been showing in prior weeks.
The NASDAQ-100 Tracker (QQQ), which tends to trade a little sloppier than the NDX.X did see today's low kiss the WEEKLY S1, but buyers quickly provided support at that level. This becomes a key level for near-term support.
The S&P 100 Index (OEX.X) traded a high of 566.99. When it did, I challenged market participants to show their bullishness with a press above this important near-term level of resistance, where in today's 01:00 PM EST Update, I showed a 60-minute chart of the OEX, where that chart was capture just before the OEX traded the overlapping 566.65 level. As you can see, the OEX didn't find enough buyers to outstrip sellers, and remains an important level of resistance.
The SOX.X traded a session high of 513.57. I highlight this as 514 kept showing up a couple of weeks ago. Lets quickly review the SOX chart. Remember too the potential head and shoulders top formation that we discussed in prior wraps.
Semiconductor Index (SOX.X) - Daily Intervals
I think it helpful to not just look at charts with their WEEKLY/MONTHLY Pivot retracement, but other types of charts. A couple of weeks ago I showed a similar chart of the SOX as that above. We kept noting how 514 seemed to be showing up in the SOX, and a conventional retracement attached as shown has 50% of a December low to recent high marking this 514 level. Today's high may well have some market participants trading the above chart and retracement. With the head/shoulder top pattern in play, a trader that shorted 535 that has now found another relative low is probably shorting this 514 area again. A quick check of our PIVOT Matrix also shows the SOX has NOT been able to see a trade at its WEEKLY Pivot of 517.06. Consider 514-517 an area of resistance.
Dow Industrials (INDU) Chart - 60-minute intervals
This 60-minute chart, along with the OEX and QQQ chart shown in today's 01:00 PM EST really begin to show where near-term resistance is line up, and where that resistance, if broken to the upside should find gains to the next level higher.
Just as the INDU fell 10-points below its WEEKLY S1 this morning, it has not been able to show much strength above 10,610, where 10,600 and the little zone of yellow resistance is at.
I've marked the recent little low of 10,521, which came just a smidge above the MONTHLY Pivot of 10,520.42 as a line in the sand for support, and perhaps more negative impact on market psychology if broken to the downside.
At the same time, with the NASDAQ showing a little life, I would have to think buying picks up, or bullishness improves, along with psychology, on a move above the 10,610 level. How about 10,615.08 and tomorrow's DAILY R1?