THE BOTTOM LINE -
Prices are in mid range between downtrend and uptrend lines and those lines form the two sides of a triangle pattern. To stake out any major call or put position requires waiting for a breakout one way or the other. Puts bought at the recent top should be held as momentum is down.
The market appears to have discounted better earnings but not what happens next with the Fed and interest rates. This influence is causing potential buyers to back off and take a wait and see attitude.
FRIDAY'S TRADING ACTIVITY -
The interest-rate sensitive stocks rallied this past week, after the latest economic data sent conflicting signals on the health of the economy, raising hopes of a slower pace in the expected rise in interest rates. This accounted for the run up in the Dow and only marginal decline in the S&P.
In a continuation of the range bound trade that I thought would unfold over this past week, the S&P 500 Index (SPX) fell 0.4 percent to finish the week at 1,134. The Dow ended at 10,451, managing to eke out a 1 tenth of a percent gain. The Nasdaq lost nearly 3% on the week, closing at 1995.
We got some reports on Friday, with March industrial production figures showing a 0.2% decline. This was weaker than the consensus forecast of +0.3%. This figure came after a large 0.8% rise in February. Capacity utilization held steady at 76.5%, down slightly from February's 76.8% - as noted on our morning report on Friday, there is plenty of idle capacity that can get ramped up in the future in our nation's factories.
The University of Michigan's April Sentiment reading of 93.2, which was below economists' forecast of 97.0 and just off March's 95.8 reading. The U. of M. survey showed that some decline in April's consumer positive sentiment appeared to be largely due to the Iraq war and other international tensions, included terrorism such as occurred in Spain. However, sentiment toward the job outlook was more optimistic then reported previously.
On Tuesday, the Fed chairman Greenspan is due to address the Senate Banking Committee; on Wednesday, he's slated to testify before the Joint Economic Committee.
The Street seems to feel that Chairman Greenspan may use his appearance to suggest that the days of the Fed accommodation toward keeping rates low might be nearing an end. No doubt eyes will be on this testimony and what happens in Iraq. The UN mission there seemed to make some headway with our Administration as far as going along with suggestions to not hand things over to our hand-picked Council in the power transfer ahead. Rather, the idea is to reach out to more popular or at least well-known and trusted figures in the country.
March leading indicators for last month (March) is due on Monday and the talk was for a slight rise, after an unchanged February. There is a supplier delivery index release due, as well as March durable-goods orders - release is Friday and while it is expected to show a rise of maybe 1 and half percent, this would be off from a 2.5% increase for February.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
The rounding top pattern outlined on the S&P 500 Daily chart below is bearish unless prices manage to break out about the circular arc at 1140. A close over this level is needed to negate this bearish view, coupled with an ability to find support at the same level - 1140 - on subsequent pullbacks. Major resistance is indicated at 1160, the approximate area of all the rally highs that have been formed over the first months of this year.
Support is implied at the intersection of the up trendline in the 1105 area. A dip under 1100-1105 would suggest that the prior relative lows at 1087-1090 could be tested as support - any close under this area would suggest that a second down leg was underway.
S&P 100 Index (OEX) - Daily chart:
The large number of relative highs in this area over several weeks suggest that a new influence is needed in the market to get buyers to bid S&P stocks through this area. Hey, the bulls have had their chance - many times!
Support is at 540 - a break of the trendline there would suggest at least a re-test of the prior swing lows at 532-533. I figure that if the trendline doesn't hold, that the prior lows won't either.
Indicators such as my Call to Put volume indicator and the stochastic model are suggesting lower levels ahead.
S&P 100 Index (OEX) - Weekly chart:
The 522-524 area, at the last cluster of weekly highs in the fall, is a likely next support if 532-533 gives way. What was resistance over several weeks could now represent a next support.
Dow Industrials (INDU) Daily:
Support at the lower trendline is at 10,200. Major support is in the 10,000 area. So, what else is new. The rally that developed off the midweek low may not go anywhere in the coming week.
The stochastic and RSI indicators shown above, as well as the same kind of rounding top pattern apparent in the S&P, suggest still-downward momentum ahead. It would be a common pattern for there to be a second decline (after the first), when there were so many weeks when the market couldn't get to new highs. Stay tuned on that.
Nasdaq Composite (COMPX) Index - Daily:
Nasdaq 100 (NDX) Index - Daily:
The upside price gap of two weeks ago was "filled in", consistent with the old adage that gaps (tend to) get filled - the gap area is the space marked by the two parallel green lines on the chart below. Support is highlighted at 1400, by both the intersection of the up trendline and the 200-day moving average. The trend looks to be for lower prices ahead.
Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
The hourly chart shows a definite bearish aspect as tops have Support looks to be at 35.50 based on prior highs, then prior lows, on the hourly chart below - at the green dashed level line. I would consider being a buyer if QQQ got to 34-34.50 again, especially if prices then held this area over a 2-3 day period. I suggest selling at 36.60, buying at 34.25-34.50, if reached.
Good Trading Success!