THE BOTTOM LINE -
At best right now I see the Dow going sideways, the S&P 100 and 500 drifting moderately lower and the Nasdaq being vulnerable to falling another 100 points (from recent lows around 2000) to perhaps the 1900 area in terms of the Composite.
This mixed picture will likely continue until there is pick up in the creation of new jobs as this would mark a substantial pick up in the pace of the economic expansion from what has seen so far in this recovery.
FRIDAY'S TRADING ACTIVITY -
The ever-popular game of figuring the consumer penchant for spending, got a bullish spin with the University of Michigan's latest tealeaf survey. The U of M consumer sentiment index ran up to 93.5 in late-February from 93.1 from earlier this month. Of course, the bearish pundits could point to the fact that all this is WELL under the 103.8 number reported in January.
Throw in any indication of a pick up in the beleagured manufacturing sector and Friday was bound to have more of a positive tone than negative. The Chicago Purchasing Managers Index, one of those that get looked at, was reported at 63.5 percent versus 65.9% in January - that figure was a multiyear high. The key thing is that readings over 50 are defined as marking economic expansion.
The Dow at 10,583 was down about 1% on the week, but up slightly on the month. The S&P 500 Index (SPX) was roughly unchanged on the day at 1145. The Nasdaq was down about 3 points Friday, putting it down only one tenth of one percent on the week with its close at 2029 but this also puts this segment of the market down some 6 weeks straight.
Pulling down the Nasdaq was the semiconductor sector as per usual, with a still-anemic earnings picture gleaned from a forecast from one chip stock (Novellus) and an under-expectations quarterly revenue figure from another (Altera).
OTHER MARKETS -
The dollar turned down based on trader expectations that the U.S. Administration will not try to stem the generally falling greenback. This led the Euro to close in New York trading at 1.248 - however, this figure while quite strong in terms of the past two years, but which can also be seen as a fall off from the highs in the 1.29 area earlier in the month. Of course, profits are tempting to take if you have been a Euro bull, a dollar bear.
The bond market benefited from the still-pervasive perceptions among bond holders that U.S. inflation will continue to be low. It was noteworthy for the 10-year Treasury bond to close up nearly half a point to yield only 3.98%, with 4% being a benchmark figure. This yield marked its lowest for recent weeks.
MY INDEX OUTLOOKS -
S&P 100 Index (OEX) - Daily chart:
The pattern that is noticable in the S&P 100 (OEX) trading is the upward sloping lines connecting the relative highs and lows of last trading.
A next move looks lower to me than what was seen recently. I think a good likelihood is for a downswing ahead that carries back to the support suggested in the area of the dashed green line around 558 - which is also near the intersection of the 50- day moving average currently. The 50-day average being a measure of possible support and buying interest also. R notes the current "line" of resistance.
My trading playbook with the OEX is to continue to hold puts, looking for at least one move to the bottom of my expected near- term trading range as suggested by the upper and lower (dashed) level lines I've put in on the chart above.
It would take a close above 572 to cause me to exit being short (long puts) in this market.
As measured by the 14-day stochastic, this market has declining momentum and not yet what could be said was an "oversold" condition.
OEX - Hourly:
It becomes even clearer on the Hourly chart of OEX where the conflicting trends are overlapping. An uptrend is defined as succeeding series of higher (new) highs and, after the market drops back, lows that stop above the prior low of significance.
By that definition and as measured by this period we are looking at on the hourly chart, the OEX remains in an uptrend until there is a lower low or to below the point of its last low around 561. If there is an hourly low under 561, the short-term trend turns down.
What looks increasingly likely to me is a decline in OEX to the lower end of a downtrend channel that may be emerging. Down toward what is marked as the support area: 560 - 558.
The resistance zone at 570-572 becomes clearer (as to where it is) by use of the hourly chart and is noted on the chart.
The two stochastic model pairs I use, mostly on hourly charts, is where "length" is set to 21 for the slower moving one and just at 5 for the faster moving one which is the topmost.
When each lines up above the red overbought line or drops to the green oversold line, the direction of prices has often reversed and that counter-trend has continued for a duration of 3-10 trading sessions. On this basis, price momentum ought to be on balance lower for the next 2-3 days or over the course of the coming week.
Dow Industrials (INDU) Daily & Hourly (DJ Index-DJX):
The Dow presents a picture of blue chips fairly valued in the opinion of money managers - bids were not aggressive any longer on the drive above 10700. ON the other hand, as we were seeing last week, there is underlying support or buying that is coming in when the market falls.
However, it also seems that given the broken hourly uptrend, a downside objective for the Dow Index is to around 104.60, as marked by the "X" on the right hand hourly chart above. This area between 104.50 and 105.0 is where the best buying interest will likely surface again unless there is big new perceived negative, like a poor job growth number or some other such shock.
The Dow has a tendency more than the other indices to go into a relatively narrow trading range after the kind of strong advance seen in Dec.-Jan. Level lines through the lows and highs makes a rectangular pattern often. The significance of it then lies in which direction prices take after its sideways crawl: above or below the lines forming the "box". In which case trade in the direction of this breakout type move.
Nasdaq Composite (COMP) Index - Daily & Hourly:
While the trend may be more sideways in the S&P segment of the market, it's clearly down over the past two months as measured by the Nasdaq Composite index.
The pattern of a sharp selloff after the last advance to the 2100 area, well under the 2150 peak, has made for a bearish looking chart. The break of the 50-day average does so also.
The key now for the bulls is whether there is a close above 2150- 2160. I think the bears will be in charge for a while longer and there will be at least one decline to 1900-1925 area.
Nasdaq Composite (COMP) Index - Daily:
Another way to see how the trend in the COMPX has gone since its intermediate rally peak in January is to look at price action within a moving average envelope. The center moving average (magenta line) is 21-days.
When this index gets well above this closing average to the extent that is 5-6% higher (red upper line in the chart below), a reversal of trend often follows.
Use of the Moving Average Envelope Indicator was discussed in my last week's Trader's Corner column, at this link.
If subsequent rallies start to fail in the area of the moving average, I first look for at least a move to the lower envelope line (set at 3 and half percent under). The percent figure will change over time, but slowly.
What frequently happens in situations like what is being suggested by the Moving Average Envelope study above, is that prices continue to fall, but not steeply - this causes the fall to seemingly "hug" the line. Over time I look for a decline, possibly to as low as the 1900 area, the region where the last major rally began.
Nasdaq 100 tracking Stock (AMEX:QQQ)- Daily:
Last week's price action in QQQ took the stock to below its daily uptrend price channel as is outlined below. What was the lower "support" trendline now may mark the opposite - an area of selling interest/resistance.
This view suggests that key resistance is at 37 currently. As long as the Q's stay under 37, I assess downside potential to be 35-35.50.
The noteworthy thing about the volume trend here is how it jumped on the struggling rally attempts of last week. This jump in trading volume suggests active liquidation. If there will still a solid uptrend going on, we would expect to see these kinds of volume spikes when the market was rallying strongly.
Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
The hourly chart below presents what I think is the bearish downtrend channel that QQQ may continue in for the next week or so. The lower end of this channel intersects currently in the 35.5-35 area which is my downside objective for short positions in the stock. Conversely and in terms of my short exit point, that is at the upper boundary as noted by the red arrow.
My current stop or exit point for short positions is at 37.7. If there is fall to the 36 area, lower to 37.1. Take profits at or under 35.5, if reached.
Good Trading Success!