THE BOTTOM LINE -
As far as sectors, the Semiconductor index (SOX) is dragging down Nasdaq and the Nas is being a drag on the S&P. Some key levels where support could develop and are areas to watch for signs of buying interest coming in again: SOX around 400-405(Friday close: 410.5); Nasdaq Composite (COMP) in the 1875-1865 zone (Fri close: 1883); if the S&P 500 (SPX) can't hold 1100, then 1080, at prior lows, is a target; if 535 is penetrated in the S&P 100 (OEX) then 530 is an objective (Fri close: 535.9); 34-34.5 looks to be, yet again, the low end of a broad QQQ trading range (Fri close: 34.7).
FRIDAY'S TRADING ACTIVITY -
The Nasdaq (Composite) closed below 1,900 for the first time in two months Friday. The blue chip NYSE traded stocks gave up early gains as rising oil prices and slowing demand in the tech sector generated concern over just how good future economic growth was going to be.
A weaker-than-expected consumer sentiment report undermined investor confidence, and took the shine off tame inflation data for June that was indicated in the latest CPI report.
THE NUMBERS -
The Nasdaq Composite (COMP) fell sharply, off by 29.5 points (- 1.5%) and closed at 1,883.15, first time below 1900 since late- May. The Composite fell slightly over 3% on the week - since the start of the earnings reporting season a couple of weeks back, COMP has fallen over 6%. The Russell 2000 (RUT), the market gauge of small capitalization stocks, was off 1.2% by the close, which was at 555.5
THE REPORTS & EARNINGS NEWS -
The University of Michigan's consumer sentiment index for July rose to 96.0 from a reading of 95.6 in June, but a bit under an expected 96.4.
IBM gave some early support to the Dow early on, as the company's chief financial officer backed consensus forecasts for Big Blue's earnings in 2004 in the wake of Q2 results in which earnings topped analyst expectations but sales narrowly missed the Street's target.
The IBM CFO also predicted the technology industry will post its best growth since 2000.
Elsewhere in tech land, Dell (DELL) Computer was buoyed after the company indicated that its current quarterly earnings would rise 29% to 31 cents, topping its own target from before a couple percent due to better operating profitability rather than by growth in its previously estimated sales figures.
Pfizer (PFE) extended a sharp decline from Thursday as it cautioned that 2004 sales would miss a $54 billion target set in April by at least $1 billion.
OTHER MARKETS -
In the FOREX market, the dollar fell against its major rivals on the inflation data, as the speculation was that low inflation boosted the odds for only a gradual hike in interest rates over coming months, making holding dollars and dollar assets less attractive. The U.S. dollar was off 1.1% again the Yen, to 108.62 yen. The euro rose 0.8% to $1.246.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
Last week, I talked about the things I look for when an Index may be setting up to reverse trend. It looked to me like SPX was at or near a bottom - WRONG! Or, at least early to suggest exiting Index put position, at least all of them. Once the midweek rally failed in the 1120 area, it was back to renewed selling pressure. The close under the 200-day moving average was bearish.
Now is a watch for whether the S&P (500) Index can hold around 1100 in the coming week and can rebound to back above its 200-day moving average, or if there will be another retreat to the 1080 area which I have highlighted at the dashed level line with a green arrow in the daily chart below -
Call to Put Ratio - this is the above indicator (not labeled). Once again, put activity in individual stock options, relative to daily call volume, is at levels associated with an upcoming rebound. However, at times where there are new fundamental market assumptions that call into question the major market trend that has come before, bearishness can hit greater extremes - this type of extreme I measure by my call to put indicator. This was the case in early to mid-May if you look at the Call/Put levels there.
Am still intrigued by the possibility that if lows are made in the 1090-1095 area, followed by a rebound, a possible head & shoulder's bottom would be in place.
S&P 100 Index (OEX) - Daily chart:
The S&P 100(OEX) failed to hold the 540 area and the up trendline that I thought might define support. A bearish close under the 200-day average is also bearish, but the 100 index tends to slip more under this key average than is the case with the 500 Index (SPX) in a bullish trend - a good example was in May when the OEX traded below it for several days. This was not situation with SPX as the 200-day average was not penetrated.
Near support is at hand now as I measure it - at 535; with the next technical support comes in around 530, at the cluster of lows that formed at the May bottom. Near resistance is at 542-545 - a rebound back above 543, that holds this area in subsequent trading, is bullish. Next resistance is around 548.
I would be alert in the coming week to signs of another upside reversal and not overstay in index puts, as it seems doubtful that there will be another whole new down "leg" here, given the approach to an oversold RSI reading and nearness to prior lows.
Dow 30 Average (INDU) - Hourly close chart:
A decline to 10,100 would represent a 62% retracement of the last upswing in the Dow, on an hourly closing basis. If there is an hourly and then daily close under 10,100 it would suggest then that INDU was heading to a retest of 10,000 again - the most bearish scenario is a "round-trip back to the lows in the low 9900 area. Once a retracement exceeds 62% to 2/3rds., a retreat to the starting point of the last rally is common.
Key near resistance is at 10,175, then in the 10,250 area.
Using my longer length RSI setting ("21") on the hourly chart suggests that the Dow as least is not yet down to a reading suggesting an oversold extreme - not as much as in May on a shorter-term basis as can be seen in the lower (Indicator) portion of the above chart.
Nasdaq 100 (NDX) Index - Daily:
1450 continues to look like key resistance, 1380, key technical support. 1380 is a potential support area to watch. NDX could sink to 1370 and simply be back to the low end of what might be a broad trading range market.
For some months now, NDX puts have been a buy at or above 1500 and buying NDX calls was quite favorable in the 1370-1380 zone. In my estimation, there is no major reason to suppose or speculate yet that NDX has built a significant top - rather than just having gone into a broad trading range.
A broad trading range market is ideal of course for Index options traders - better than a strong trend higher or lower that offers fewer places to get back in to a major trade.
Nasdaq 100 tracking Stock (QQQ) Daily:
I anticipate support coming in at the 34-34.5 area and near resistance at 35; then, at 35.50, which can be better seen further on in the hourly chart, past the daily chart immediately below -
Nasdaq 100 tracking Stock (QQQ) Hourly:
Good Trading Success!
TRADER'S CORNER ARTICLE NOTE: