THE BOTTOM LINE -
In the Nasdaq market segment, the Composite (COMP) will probably not fall much further, maybe back to the 1900 area (from 1925 on Friday); the Nasdaq 100 should find support around 1400, but 1370 might be touched; QQQ reached minor support at the low end of its hourly downtrend channel already, at 34.80 - but a fall to the 34 area can't be ruled out if a re-test of the late-March lows was in the cards. I somehow think that there will be a rebound from recent lows. The Nasdaq has fallen further than the S&P on a percentage basis, but these indices are also not yet fully oversold. However, a sideways trend for a few more weeks will bring oscillator type overbought/oversold measures down further. Tech earnings were the first to go at the major peak of the market in 2000 and will likely be the last to come back, at least on a sustained basis.
Bottom bottom-line to traders: don't overstay in puts taken for a trade or how NOT to turn a trade into a buy and hold situation anticipating a further free fall. Call purchases can be considered of course if you trade very short-term. I tend to think that the first rally will not be the most sustained one.
FRIDAY'S TRADING ACTIVITY -
Well they didn't 'dress up' those 'windows' in stock portfolios for the month that ended Friday, as the tone of trading was bearish overall for the last week in April - now, on to May.
After holding on to gains for some of Friday, the S&P 50 (SPX) ended down 6.63 points (-0.6%) to 1,107.26; the Dow 30 Average (INDU) closed at its intraday low, off 46.70 points (-0.5%), ending at 10,225.57. [For the week, SPX lost nearly 3% and the Dow, 2.4%. For the month SPX was down 1.7% and 0.4% year-to-date; the Dow lost 1.3% for the month of April and 2.2% for the year.]
The Nasdaq Composite also closed right around its Friday intraday low, off 38.6 points (-2%) to close at 1920.15. [For the week, COMP was off a sizable 6.3%, putting it down 4.1% on the year.] The Nasdaq extended its losing streak to five straight days on Friday.
Jitters about an expected shift in interest rates, combined with China's attempts to cool its economy and developments in the Middle East all conjoined to keep pressure on stocks in April.
The worst performers continue to be tech stocks - networkers, internet, semiconductors, hardware, software, airlines, biotechnology, and the broker sectors were some of the market's worst-performing groups. Drugs, gold, integrated oil and natural gas were among the few winners.
Next week brings another round of economic reports with the ISM index on Monday, the FOMC meeting on Tuesday, the ISM services on Wednesday and the non-farm payrolls report on Friday.
An early bounce occurred Friday, as the market took kindly to another round of economic data, earnings from select Dow- components here at home and news in Iraq - namely, a pullback by Marines from Fallujah, Iraq. This was not to last of course.
Personal income and spending numbers came out before Friday's Open and showed just a 0.1% gain, the smallest in five months. Real disposable incomes increased 0.1 percent in March, the smallest gain in six months. This was still good-news if the focus was on whether there is a compelling reason for the Fed to hike interest rates at some point.
The Chicago PMI (Purchasing Manager's Report) was expected to jump from 57.6 in March to 60-61 in April. The Chicago PMI report beat estimates and was reported at 63.9, but as OIN noted Friday, this report was not soothing to those concerned about an interest rate rise.
The latest numbers from the University of Michigan consumer sentiment were expected to rise a bit. Sure enough, the U of M said its consumer sentiment index improved to 94.2 in April from 93.2 earlier in the month - however, their index was down from 95.8 in March so there was little to cheer about.
Expect some Monday morning reporting on any market comments from Warren Buffett, who is hosting his company's annual shareholder meeting in Omaha this weekend, with thousands of investors and fans flocking to hear what he has to say about the business cycle and where he thinks the economy might be headed this year.
OTHER MARKETS -
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
The recent lows have put SPX back at its rising longer-term up trendline and could be a natural stopping point to the recent decline. On the other hand, a decisive break below the bottom line of the symmetrical triangle type pattern traced out on the chart below could suggest a more bearish outcome than this. My best guess is that the immediate further downside potential is limited, especially given the bullish 1-day reading on my Call to Put options indicator.
Resistance is at 1140, support in the 1105-1107 area, then at 1100-1095. I would prefer taking put profits and buying further dips by going into index calls, looking for at least a short-term bounce.
S&P 100 Index (OEX) - Daily chart:
My view of the OEX is similar to that of the SPX, in that there is some likelihood that the recent drop to the up trendline might be the low. However, its also quite possible that the prior lows around 532-534 get re-tested, which would also put the S&P 100 Index down at the lower trading band or envelope line (equaling a level that is 3.5% under its 21-day moving average) as well as in the area of its 200-day moving average.
The envelope lines are something I use as a benchmark only as the S&P tends to trade within these extremes a lot of the time. However, indicators like the 200-day average are more universal - institutional money managers will take note of the 200-day average and might use it as a benchmark and see this area as a place to do some more buying. And these folks are the 900 pound gorillas of the market.
Near resistance is at 547-548, then at 555 on up to 558. I don't always repeat what I think is obvious (ha) - the green up arrows is what I figure as significant or noteworthy support points and the red down arrows are at noteworthy resistance areas.
Dow Industrials (INDU) Daily:
You can see from the right hand Weekly (close-only) chart below that this Index has barely fallen from its recent peak. But that recent peak was also a downside reversal from a longer-range (down) trendline (relative to tops made in Jan 2000 and May 2001) - and this top also was in the area of a prior significant peak. Since uptrends are defined as a series of higher rally peaks, the Dow has failed to establish that there is a major bull market in place - not yet.
Shorter-term, resistance is in the 10,500 area, and support as suggested by the daily chart up trendline, is around 10,200. Intermediate support is figured at 10,000, at the 200-day moving average. (I figure major support at 8,500 at the long-term weekly up trendline.) Often, when INDU has an "inside day" like it did on Friday (the price range being 'within' the prior day's), this marks the end of the decline short-term. Stay tuned on that.
If there was one more shot down to 102-101.8, I would not only exit puts in the Dow Index options - DJX - but buy some calls, anticipating a tradable rebound in the coming week.
Nasdaq Composite (COMP) Index - Daily:
Resistance is at 1980 at a prior low - what was support tends to "become" resistance - as noted on the level gray line on the chart below. Next higher and more key resistance is at 2050, at the down trendline.
Key areas I'm watching on the downside: at the lower envelope line and already reached on Friday, with the decline to the 1920 area; and, the obvious technical support at 1900 as implied by the prior lows. Hey, it worked before to buy tech in this area in terms of the Composite! The market works on price history to some extent.
On a short to Intermediate-term basis, the Composite is now registering in an oversold area, at least as suggested by the 14- day RSI. Stay tuned on what effect this has if investors continue to treat tech stocks as having unacceptable levels of risk around current (P/E) multiples based on expected earnings.
Nasdaq 100 (NDX) Index - Daily:
"1410, maybe a quick dip to 1400, is my target on NDX, with upside potential back up; to 1450 on a rebound" - what I said in my Thursday night Index Wrap. I would add that there is potential for re-test of the prior lows around 1370.
However, NDX on Friday got back to the previously broken down trendline as can be seen on the chart - if a return to a previously broken UP trendline is the "kiss of death" trendline as I sometimes call it (smiley face), then a return to the previously broken DOWN trendline could be called the "kiss of life" trendline:- Stay tuned on this.
Anyway, I tend to think it's too obvious a next downside target as being to the prior lows. Hey, if it was that easy, we would all be rich or richer than we are from trading activities anyway!
Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
In the 'Opps I spoke to soon' category of life, here is also what I mused on my previous Index commentary: "contrary to what I said about a target to 35, then maybe to 34.50 (or 34), in the short- term I think that the Q's could rally some first, probably back up to 36.30 or so." - WRONG! - well it goes to show, don't be hasty to give up on your objectives. So now we are in the zone where I see potential support shaping up, what!?
I did cover some short positions in QQQ stock on Friday but didn't yet buy to play an anticipated bounce given the weak tone of the market in the afternoon. However, buying under 35, on down to 34 and using an exiting sell stop at 33.7, I consider a trade on the long side to have some short-term upside potential and decent risk to reward.
I figure near resistance to be at 35.60-35.75, then at 36.50 at the 21-day moving average, on up to around 36.75 at the upper end of the hourly downtrend channel drawn on the QQQ hourly chart below right. The other noteworthy technical/chart aspect is that Friday's low put the Q's back to a possible (downside) stopping point at the previously broken down trendline on the Daily (below, left) chart.
Good Trading Success!