THE BOTTOM LINE -
The Dow has been working lower in a well-defined downtrend channel - - option traders, take note of these regular price swings, back and forth within this channel! It looks like INDU may be headed to the low end of this channel as I've highlighted above, around the green up arrow, around 9630 currently.
The other indices will be covered in detail in my "Index Outlooks" section further along.
FRIDAY CLOSING NUMBERS -
The Nasdaq Composite (COMP) gave back 38.5 points (-2%) to wind up at 1,915.1, but did manage to close up a hairs-breath for the week (+0.2%).
FRIDAY'S TRADING ACTIVITY -
The Dow Industrial average, representing the bluest of the Blue Chips ended at a new low for the year Friday, and the tech-heavy Nasdaq (Composite) got nicked a couple percentage points. This after a week that saw crude hit a new high, closing above $55 for the first time ever. Also, mixed earnings reports in tech stocks, undermined investor confidence in the outlook for the economy.
Google rallied strongly on a strong Q3 performance, while Microsoft and Amazon fell back as their results disappointed investors.
Google rallied strongly as investors took cheer from their first quarterly results as a public company. The company indicated that its Q3 earnings and revenue both doubled, boosted by a strong income stream derived from the expanding business of sponsored search advertising on the Web. The stock shot up more than 15% to end at $172.4.
Google went public (mid-August) at $85 a share. Hey, who didn't buy the stock cause they thought it was too pricy then - that would be ME - WRONG!
It was a different story for Amazon. Shares of the giant Web retailer fell sharply after its Q3 earnings and its '05 sales outlook missed expectations. Strength in international sales was offset by lower operating profit at its North American business as free shipping ate into its bottom line. Love that free shipping! Not so the market, as the stock fell some 12%, to $34.60.
Microsoft (MSFT) fell 3% on some reported concern about its Q2 outlook. Late Thursday, the company said their fiscal Q1 net income rose 11% from a year earlier as client software sales, server revenue and X-box sales all rose.
However, the Credit Suisse/First Boston analyst following the company said that MSFT "appears to be struggling to hold global PC market share due to piracy and competition from Linux, notably in Asia". The company's Q2 revenue forecast was also slightly below current Street estimates, although the upper end of its fiscal '05 revenue estimate was above expectations.
OIL JITTERS -
OTHER MARKETS -
A major risk is also that this downward spiral in the greenback will make it less attractive to foreigners to continue to finance our huge government deficit by buying U.S. government bonds) - we remain quite dependent on the world given the low U.S. domestic savings rate.
T-bonds rallied as the surge in oil prices offered some hope the Federal Reserve may suspend any further rate hikes as at least pending what the impact will be of such high energy prices on economic growth. The 10-year T-note ended up 5/32 at 102 5/32, to yield 3.98%.
MY INDEX OUTLOOKS -
S&P 500 Index (SPX) - Daily chart:
This broader measure of the market however, is far from going to a new closing low however, unlike the Dow Industrials. It rather appears to be just continuing to meander back and forth in a trading range.
SPX looks like it might be headed back toward near support at 1090 again, and perhaps to its lower trend channel boundary again, currently set at 2.5% under its 21-day average, suggesting a target of around 1080. For sure a close over 1110 is needed to turn the chart picture bullish again near-term. Play the S&P for lower unless this happens.
No bullish "sentiment" reading yet - that is, when a lot of options traders get active in puts, relative to calls and result in a reading of around 1; i.e., equities put volume equals call volume on any one day.
S&P 100 Index (OEX) - Daily chart:
520 looks to be an place to puts. This index is getting oversold on the RSI too and this is another way of looking at the risk of being in puts after that.
I usually look at the OEX up, down and sideways in terms of different chart pattern patterns and different indicators, so it might be interesting to look at the S&P 100 in some different ways also. It too has been trading in a fairly well-defined downtrend price channel as we'll see in the next chart -
S&P 100 Index (OEX) - Daily chart:
In a downtrend and after prices rebound a bit with higher highs and daily lows for a few days, a resumption of the prior (down) trend tends to occur. For those interested in reading something about this kind of chart pattern, which happens in both advances and decline - "flag" patterns,
Going on - don't forget to look at the hourly index charts also, as it will show you the picture in a different way -
S&P 100 Index (OEX) - Hourly chart:
Sometimes, a rally will achieve a slight, but fleeting, upside penetration of a down trendline, as was the case below when OEX rebounded to around 537-538 but where TWO consecutive hourly closes fail to get above this line; and the prior trend resumes -
Nasdaq Composite (COMP) Index - Daily chart:
1900-1910 continues to look like key near support, with next technical support assumed to be around 1870, a the minor up trendline at the green (up) arrow.
It doesn't seem likely that tech will buck the trend of the NYSE indices if they continue to fall. Stay tuned, my crystal ball is a big hazy on this, but if I had to pick my direction, I would say COMP is going lower.
Nasdaq 100 (NDX) Index - Daily chart:
I continue to emphasize keeping an eye on the 21-day moving average, as a good trading direction indicator - staying above it suggests rally potential; staying below it, the reverse situation.
I would peg near support at 1440, then around 1415, with more major support expected at 1370.
A significant technical negative is the bearish price/RSI divergence, as the last high was accompanied by an RSI reading well under ITS prior high, as I've highlighted on the RSI chart above. That and the double top, suggests that NDX is headed still lower.
Nasdaq 100 tracking Stock (QQQ) Daily chart:
The recent rally in QQQ seems to have failed or reversed at its upper trend channel line, but the Q's has not pierced its minor up trendline that has been traced out on the advance over this month's advance.
If QQQ can't hold above 35.75, I anticipate lower prices will be seen for the Nas 100 tracking stock. 35 is minor support, but key support really looks like 34-34.25
My view of QQQ being in a 34 to 37 trading range near-term is maintained. A close over 37 would suggest a bullish technical breakout. A close under the prior low around 34.25, would suggest that prices were headed still lower.
Nothing much shows up with the volume, as its just been holding steady, but the same bearish price/RSI divergence as with NDX shows up of course. I'm also watching whether the cluster of recent lows around 35.50 hold or not as a clue to the next move.
Good Trading Success!