THE BOTTOM LINE -
I stand corrected - said last week: ".. the market looks headed still higher but watch for the ability of the S&P 100 (OEX) and Nasdaq 100 (NDX) to close above resistances at 546-548 and 1478 respectively, as well as at 10,300 in the Dow 30 (INDU)."
Dow at 10,300 - furgetibotit!! The S&P 100 (OEX) got close to, but not above, 546-548 OEX resistance. The Nas 100 (NDX) stopped at 1474 two days running and then reversed downward in a 2-day swan dive.
The S&P 100 (OEX) and Nasdaq 100 (NDX) continue to be the best predictors of the NYSE and Nasdaq markets. Both are giving the most technical information about the overall trend right now - both stopped right at the top end of their current downtrend channels. The bulls are stymied and stalled again -
You can best see the channel below by use of a line chart, showing closes only. To the failure to surmount its pattern of lower highs on each rally, highlighted by use of trend channel lines in the chart below, is the minor double top and a second reversal at its 200-day moving average.
Th2 200-day average must be seen in the light of its significance to the money manager universe. Fund managers can tend to hold back buying if the key averages are stalled at this average. The herd mentality does the rest.
On channel and trendlines -
The gray upper trendline on the chart below is the most technical and classic way to draw these lines. The blue dashed line below it, is what works in trendlines: "internal" trendlines, that touch the MOST number of points -
Anyway, its clear that the more substantial reaction and sharp down day ending the past week, was probably the start of the more substantial correction that many thought was coming. Right now the downside for the Nas 100 doesn't look to be more than back to its 1380-1400 support. Plenty of wild cards out there also, as well we know.
THE CLOSING NUMBERS -
The Nasdaq Composite Index (COMP) dropped 28.5 points, to 1,919.9 on the back of the steep loss in the Semiconductor Index (SOX), off by 13.8 to 389.5 on Friday. COMP fell 1.1% on a weekly basis.
The Russell 2000 (RUT) of small cap stocks fell in line with the Nasdaq, by 1.2%.
BACK TO THE FUTURE - I also said last time on oil prices - ".. Oil looks to me like its going to 52 next and I don't know how long the market will shrug this off. Technically, both the market and oil look headed higher so I go with how both charts currently."
Oil hit 53 at week's end and nearly has reached 54, a price target based on analysis of a bull flag pattern there per my trader's corner article of last week
Here's the crude chart updated -
The rise in crude is in one of those irrational straight up kind of markets, and more typical (exception: 90's bubble) of a commodities market move - the decline after excess valuations on the upside, is often sharp. I expect the oil price rise to moderate soon and prices to fall back substantially in the not distant future. This will help stocks some and moderate their decline.
FRIDAY'S TRADING ACTIVITY -
A big negative to the market came early when the Labor Department said a total of only 96,000 new jobs were created in September. The expectations for the September period I saw were expectations somewhere from 135 to 150,000. 150,000 is what is needed, on average, to provide jobs to new job seekers.
The unemployment rate steady at 5.4 provided the only 'good' news. The non-farm payrolls number was highly important and it had a lot of focus on it - the jobs growth was very disappointing, the silver lining being maybe that the Fed would not or would not need to do any further tightening.
No upward revision to fall back on either, as July and August's job non-farm payroll numbers got a slight downward revision.
Moderate GDP growth yes, but only a mediocre labor market. A widely held notion is that the purchasing needs of consumers newly hired, is what ramps up our consumer-driven economy. No new workers, equals a drag on growth.
Acting as another drag on likely and projected future economic growth and not requiring an economics degree to see - oil going up like there is no tomorrow is an accelerating worry.
In the crude-oil futures pits, nearby oil futures ended above $53 a barrel - latest bad news: oil-worker strikes in Nigeria and Norway and news of halts to tanker unloading in a Gulf of Mexico port. The November crude oil contract was up 64 cents to $53.3 a barrel in New York trading. In the past week, the price of oil has risen over $3 a barrel (+6.4%)!
You could see this picture of a static - or worst, slowing - economy, reflected in the Friday sell off.
The Commerce Department reported that wholesale inventories rose 0.9% in August, the largest increase since early this year and higher than the 0.8% rise forecast. Hey, if the stuff (our widgets) piles up in warehouses, we aren't ringing those cash registers!
A kick off of the Q3 earnings season came with big Dow 30 (INDU) component stocks General Electric (GE) and Alcoa (AA).
GE came in at 38 cents a share, matching the average forecast, and the company projected a double-digit earnings growth for Q4 and for 2005. A bullish outlook - a lowering of the tide took even flagship GE with it as the stock slid 0.6%.
Alcoa (AA) had reported Thursday night and announced operating income of 34 cents a share on revenue of $5.98 billion, matching expectations - however, the company had warned in September that results would fall short of prior expectations because of restructuring costs and manufacturing shutdowns. AA end down 2%.
BONDS and FOREX MARKETS -
The bond market closed early Friday ahead of the Columbus Day weekend and will not re-open until Tuesday.
The dollar fell in the wake of the payrolls report, with traders fearing that weakness in the labor market will force the Fed to delay further interest-rate hikes - same thinking as in the Bond market, different result!
But ALSO, we are hot and heavy into EARNINGS season ahead. A time when money managers stay plugged into the home office to get earnings for the stocks they've bet heavily on. I knew one that had consensus estimates for the stocks important to him, programmed into his watch. So, there will be a lot of cross currents ahead, but the trend looks down for a while.
It used to be if memory serves me right, Columbus Day - hard to believe yes - was also a day that the NYSE took as a holiday, not just the more genteel bond market. This day was akin to a "personal day", as there were so many Italians that toiled in the Street of Dreams. Times change and Nasdaq competes and one seemingly peculiar holiday choice goes bye bye.
Keep in mind however, the bond market, that sometimes stabilizing influence (or not!), is closed on Monday. Also keep in mind that a lot of stock traders will take a 3-day weekend also. This explains some of the volatility on Friday and may make Monday a low volume day and exacerbate trends - meaning potential to be more volatile. .
MY INDEX OUTLOOKS -
S&P 100 Index (OEX) - Hourly chart: Another way to look at the OEX is of course to use intraday intervals -I use most what is in widest use as an analytical tool, hourly charts. Close of the hour, day, week and month are the important intervals.
Use of the hourly chart has been very useful for traders over the past month. This time frame gave a good definition the Head & Shoulder's Top that formed at the last significant high before this last one. Moreover the rebound to, but not beyond, the old high of course sets up a double top. That alone is a good "signal" to exit calls and go into puts - give it 1-2 days to see if there is another try, like there was last week.
When the first and second highs also come back to resistance implied by the previously broken up (bullish) trendline - what was support, once broken, "becomes" a new resistance - was also telling. I call this in fun, a rally back to the "kiss of death" trendline (a name heard from a technical trader type)- was good- bye indeed!
So, you've looked in your REAR view mirror took a look at how you could have spotted this pattern in time - we hope! - to exit calls and buy puts, but what next? Back to support. Key near technical support looks like 530. More major support comes the closer OEX gets to the 510 area - 507 is only a 38% retracement of the big 2003-2004 advance.
Dow 30 (INDU) - Hourly:
This last rally that touched, and reversed at, the extension of the dominant down trendline was a sure tip off to get yourself out of calls and into puts.
However, not so sure that you will be the trendline right - cause, hey, isn't that a high that that thar trendline intersects and isn't that against the rules, or something? Na, trendlines work when you apply 'best-fit' and draw the one that touches the MOST number of highs in the case of a bearish downward sloping one like below in the hourly INDU -
The 10,000 area still looks like key technical support.
Nasdaq 100 (NDX) Index - Hourly chart: As sometimes happens, the sharp run up was only a prelude to fast retracement of the ground gained a week ago Friday. The volatility ahead of a weekend is again creating some fireworks. The Nasdaq 100 (NDX) is nearly back down to my estimate of the low end of the channel that NDX may be in. Stay tuned! No bets on whether this suggested support will prove out. 1380 is of course the important area, around the prior low. I would take profits on puts if 1385 was seen.
The Index is nearing a very short-term oversold and this should be kept in mind. Support may well develop around 1420 as the low end the upside gap from late last month. Prices often return to at least the start of where prices took and overnight jump, which is what a gap is.
Nasdaq 100 tracking Stock (QQQ) Daily chart:
I had been talking about 36 as key resistance - as soon as the Q's broke back below that level, it was high alert! for the bulls, not that there are that many to be found out there.
First and more minor support is around 35 according to the baby trendline, but main area to be held by the bulls is 34-34.25. The way the stock broke on Friday led, at first blush, into the idea that the market was in danger of cracking some here.
But, the prior Friday was a big move up and that (rally) fell apart. It's needed usually to see the next 1-2 days of trading after a big move going into a weekend with nerves on the fray.
The "break-down point" was 36.25 - short the stock on rallies back to this area.
I don't think this market is going anywhere soon but give it until Tuesday. And maybe until November. October, especially in an election year, and this election year in particular, has a LOT of cross-currents.
The On Balance Volume indicator turned down on 10/6 and gave some forewarning for the substantial fall from Thursday high to Friday close.
Good Trading Success!