THE BOTTOM LINE -
While the tech-heavy Nasdaq Composite (COMP) is back into its downtrend channel and fell to below it's 200-day moving average (at 1980), COMP has completed a Fibonacci 62% retracement of its early-May to mid-June run up - this amount could also mark a maximum extent of its decline. While another retreat to the 1900 area can't be ruled out (from Fri's close at 1946), the Composite is back down to a long-term weekly support (up) trendline. A wild card is tech stocks here and whether the Nasdaq market will stabilize shortly and cease acting as a drag on the NYSE indices.
FRIDAY'S TRADING ACTIVITY -
THE NUMBERS -
The Nasdaq Composite (COMP) ran up 11 points (+0.6%) to close at 1,946.3. The Russell 2000 index (RUT), a benchmark index for smaller stocks, was up a half percent on the day.
THE REPORTS & EARNINGS NEWS -
GE's net earnings were $3.9 billion, or 38 cents a share, versus earnings of $3.8 billion, or 38 cents a share, in the same period a year earlier. As OIN reported on Friday, comments from GE CEO Jeff Immalt regarding the economy and future prospects GE were very upbeat. Immalt indicated that: "This economy is the best we've seen in years and I'm 'confident' our company can grow our earnings 10% to 15% in 2005". GE's stock closed up 1.5% on the day, at $32.17
Wholesale inventories jumped a stronger than expected 1.2% in May, which was above the forecasts for a 0.6% increase. Sales for May rose 0.5% putting the monthly inventory to sales ratio at 1.13, marking the first month since June 2003 where inventory growth exceeded sales growth. April's figures showed a 0.1% decline.
After a string of earnings warnings out of the software sector, some stirrings occurred for hardware company Storage Technology (STK), which had a substantial run up after warning the day before of a decline in orders for the recent quarter - putting expected revenues below a prior forecast.
What the market seemed to pick up on and which was similar in outlook to the expectations of GE's top exec, were comments from Storage Tech CEO Pat Martin who indicated that he "remains upbeat on the second-half of the year as a product upgrade cycle begins". STK finished at $28.30, +3.05 or up 12%.
German software giant SAP (sym: SAP) reported that it expected Q2 revenue to grow 9% from a year ago, topping estimates and bucking the recent software warnings trend (e.g., Computer Associates, Sibel Systems, Veritis and BMC). The U.S. traded shares of SAP rallied $2.08 (5%) to $40.04 at the New York close.
THE TALK -
There is concern also related to the recent rebound in oil prices back to $40 and the potential drag of high energy prices on the economy. As one market analyst pointed out, stocks have been moving inversely to oil prices - as oil backed off from a record $40 a barrel, the market went up, but when oil rebounded, stocks corrected. As I note above, we've seen a fast 50% retracement of the early-May to mid-June rally in the S&P 500.
OTHER MARKETS -
The dollar was barely changed against the other major currencies.
Oil futures closed below the key $40 a barrel level but the front month crude contract was up more than 4% on the week. The most active August crude futures closed down 37 cents to $39.96.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
I mention in the beginning bullish technical aspects, which are apparent on the chart and with the indicators of: the S&P 500 (SPX) being back to its previously broken up trendline, now 'defining' possible support - see green arrow around 1109-1110; 2) completion of a 50% retracement of SPX's early-May to mid-June advance, and 3) as suggested by a big jump in put volume last week to a level of bearish sentiment often marking a low.
While I don't usually don't try to anticipate technical patterns that might form before they actually do, it is interesting to note that at the recent lows or, better, if there was a lower low in the 1100-1090 range, followed by a rebound, a possible head & shoulder's bottom would be in place. All things considered, I would not overstay in index puts due the probability that SPX is at or near a bottom. I pay special attention to the bullish Call/Put readings of last week.
SPX is also nearing its 200-day moving average again (at 1100), the same situation seen at the early-May bottom when it rebounded from this area then. [Note: the Dow (INDU) appeared to find support at its 200-day average at its intraday lows already Thurs and Fri.]
S&P 100 Index (OEX) - Daily chart:
I was looking at the possibility that that there was an emerging uptrend line on the OEX chart below. At least two points are needed to start to draw a trendline - starting with a close-only line chart there is the possibility of such a line of support intersecting around 540 currently. Since it's tentative, something further can be learned to keep the trendline in place and change the chart view to a chart view that includes intraday lows and highs (i.e., bar or candlestick chart type) which will be seen in a daily chart after this one immediately below -
S&P 100 Index (OEX) - Daily chart:
Interestingly, switching to a bar chart 'view', the trendline becomes an accurate "internal" trendline - one connecting the most number of intraday lows or highs. I also call this a "best fit" trendline. This analysis suggests the possibility - stay tuned on the result! - that 540 is as low as she goes. A move to the 530-532 is a next possible objective if the aforementioned recent lows do not hold. I would be a buyer of OEX calls on such a further decline while holding some purchased in the 540 area.
Resistance or selling pressure is anticipated in the 550 area - a close over 550 (or better, two consecutive closes) would suggest a reversal back to the upside. A sideways move between 540 and 550 would not be surprising in the next few sessions.
Sometimes trendlines drawn on the RSI indicator chart, like the one above, are also suggestive of where prices will hold. will hold.
Nasdaq Composite (COMP) Index - Daily:
The Nasdaq Composite (COMP) has more of a tendency than the S&P and the Dow to fall under its 200-day average which was the case last week as can be seen on the next chart. As noted in my opening commentary, COMP has retraced 62% of its prior upswing. This might be as low as it goes, although a further decline to retest the 1900 area can't be ruled out either - I don't have lower objectives than this currently.
A move back to the 1900 area, followed by a rebound would also set up a possible head and shoulder's bottom. COMP is nearing an oversold area in terms of its 14-day RSI - there is good tendency in recently months for bottoms to occur when there is a reading(s)in this area, as can be seen in the chart above.
Nasdaq 100 (NDX) Index - Hourly:
I highlighted before the bearish price/RSI (length: 21) divergence, that proved to be an excellent tip off to the recent top; i.e., the series of higher highs, "unconfirmed" by a similar high in the RSI, suggested a high potential buy of Nasdaq 100 (NDX) index puts.
Now, the reverse - a bullish divergence - situation is suggested as prices moved lower, while the RSI has been trending higher. Near support looks to be 1430, with the next area of lower support anticipated in the 1410-1408 area. Resistance is at 1450, then 1460. I gauge more major resistance to be the "gap" area at 1471-1473.
Nasdaq 100 tracking Stock (QQQ) Daily:
I would be a buyer of the stock in the 35-35.50 area. 35.50 might hold as support or prices may drift lower, along the previously broken up trendline, which is now looking to be a decline "line" of support. The lower envelope line comes in just under 35. My lowest technical objective is to around 34.50 currently. Resistance is at 36.5-36.7 currently.
I haven't shown the volume chart as analysis of this indicator isn't telling of anything especially - volume diminished somewhat on Friday as trading tapered off ahead of the weekend.
TRADER'S CORNER ARTICLE NOTE:
Good Trading Success!