BigTrends.com Weekly Market Outlook
Enviado: 24/1/2005 10:30BigTrends.com
Weekly Market Outlook
January 22, 2005
NASDAQ COMMENTARY
The NASDAQ is 0 for 3 this year, in terms of weekly performance. Losing 53.6
points in last week's abbreviated trading, that brings the year-to-date loss up
to 141.2 points. That's a 6.5% slide since December 31st of last year, and
needless to say, has the bulls a little bit stunned. However, with little hope
left following a lot of technical damage, the selling may not be over yet -
this current momentum is strong enough to tell us to expect in even more
downside.
As usual, the best clues are subtle ones. We've already seen how the 10 and 20
day lines have fallen under the 50 day line, so we won't rehash that - just
remember that it hasn't changed since our last update. Nor will we discuss the
bearish MACD crossunder again - that actually happened in late November. We'll
only briefly mention that the selling volume has stayed strong. When volume
starts to taper off, that often occurs a few days before a reversal, so the
bulls were hoping to see the red volume bars at the bottom of our chart get
shorter and shorter. So far, they haven't. There are just as many sellers now
as there were three weeks ago, so the bulls are still outnumbered.
There are, however, two things that are different. For the first time since
September, the 50 day line (purple) is pointed lower instead of higher. It's
just a testament that this weakness is occurring in multiple timeframes. It
also makes it that much more difficult to make a short-term (swing) recovery
when the intermediate-term trend is still pushing lower. The other key
difference is a break under the support line (dashed). This support is drawn
from the lows made on August 13th, September 28th, and October 26th. As of
Thursday, that support line is, well, no longer a support line. Augmenting that
bearish event is the fact that it was the same day a bearish gap was made. That
was the bears' way of making a decisive statement.
As for where it might end, it looks like the 200 day line (green) will end up
being the next potential support line. A few weeks ago we didn't think stocks
would fall quite that far, but now, the landscape has changed. The 200 day
average is currently at 1976, or about 60 point from Friday's close at 2034.27.
If we do fall all the way back to that mark, that would represent a 200 point
decline for the NASDAQ from the year-end peak. In percentage terms, that's a
little more than a 9% dip. If that number seems familiar, it's about the
average size of a regular bull-market correction.
On Tuesday it looked like the S&P 500 may pull out of its tailspin,
rallying back above the 10 day moving average. But a day like Wednesday is the
reason we wait for confirmation. By the end of the Wednesday session, the
majority of Tuesday's gains had been given back....and more losses were on the
way. For the week, the S&P lost 17 points, or 1.4%. For the first three
weeks of the year, the S&P is down 44 points, which translates into a 3.6%
pullback from the new highs we were hitting at the end of December. Needless to
say, this is far from inspiring, even to the perma-bulls.
Technically, the second wave of damage confirmed the signals from the first
wave. To be specific, we saw the SPX fall under the 10, 20, and 50 day lines
two weeks ago. There was some support at 1176 (dashed), where the index had
managed to bounce a couple of different times. So we marked loose support
there. After Friday's close at 1167.82, the S&P 500 has officially made a
lower low after making a lower high.
There's a more subtle clue for the S&P 500 too. Both of the MACD lines are
now under the zero level. This happened for the NASDAQ several days ago, but
the SPX was managing to at least partially hold positive levels. That in itself
isn't a terrible problem, but the fact that we're seeing a new negative
momentum divergence (as of Thursday) is a bearish problem.
We're seeing an equally subtle bearish clue in our Directional Movement Index
(DMI) lines at the bottom of the chart. Like most indicators, we actually saw a
bearish crossover for the DMI lines several days ago, when the DMI+ (green)
line fell under the DMI- (red) lines. What's new, though, is the fact that the
DMI- line is on the verge of moving above the ADX (grey) line. For that to
happen, the degree of change in the highs and the lows has to be pretty
bearish. For an example of how the position of the DMI and ADX lines can
determine the strength of the trend, just go back to October. When the DMI+
line was leading the grey ADX line in late October and early November, the
market was racing higher. Once the ADX line 'caught up' with and crossed back
above the DMI+ line, the rally was slowing down. Now we see the opposite of
that chart. With the DMI- line leading rather than lagging, we know this
downtrend is very strong.
Like the NASDAQ, the next potential landing point for the S&P 500 is the
200 day line, at 1133.
Weekly Market Outlook
January 22, 2005
NASDAQ COMMENTARY
The NASDAQ is 0 for 3 this year, in terms of weekly performance. Losing 53.6
points in last week's abbreviated trading, that brings the year-to-date loss up
to 141.2 points. That's a 6.5% slide since December 31st of last year, and
needless to say, has the bulls a little bit stunned. However, with little hope
left following a lot of technical damage, the selling may not be over yet -
this current momentum is strong enough to tell us to expect in even more
downside.
As usual, the best clues are subtle ones. We've already seen how the 10 and 20
day lines have fallen under the 50 day line, so we won't rehash that - just
remember that it hasn't changed since our last update. Nor will we discuss the
bearish MACD crossunder again - that actually happened in late November. We'll
only briefly mention that the selling volume has stayed strong. When volume
starts to taper off, that often occurs a few days before a reversal, so the
bulls were hoping to see the red volume bars at the bottom of our chart get
shorter and shorter. So far, they haven't. There are just as many sellers now
as there were three weeks ago, so the bulls are still outnumbered.
There are, however, two things that are different. For the first time since
September, the 50 day line (purple) is pointed lower instead of higher. It's
just a testament that this weakness is occurring in multiple timeframes. It
also makes it that much more difficult to make a short-term (swing) recovery
when the intermediate-term trend is still pushing lower. The other key
difference is a break under the support line (dashed). This support is drawn
from the lows made on August 13th, September 28th, and October 26th. As of
Thursday, that support line is, well, no longer a support line. Augmenting that
bearish event is the fact that it was the same day a bearish gap was made. That
was the bears' way of making a decisive statement.
As for where it might end, it looks like the 200 day line (green) will end up
being the next potential support line. A few weeks ago we didn't think stocks
would fall quite that far, but now, the landscape has changed. The 200 day
average is currently at 1976, or about 60 point from Friday's close at 2034.27.
If we do fall all the way back to that mark, that would represent a 200 point
decline for the NASDAQ from the year-end peak. In percentage terms, that's a
little more than a 9% dip. If that number seems familiar, it's about the
average size of a regular bull-market correction.
On Tuesday it looked like the S&P 500 may pull out of its tailspin,
rallying back above the 10 day moving average. But a day like Wednesday is the
reason we wait for confirmation. By the end of the Wednesday session, the
majority of Tuesday's gains had been given back....and more losses were on the
way. For the week, the S&P lost 17 points, or 1.4%. For the first three
weeks of the year, the S&P is down 44 points, which translates into a 3.6%
pullback from the new highs we were hitting at the end of December. Needless to
say, this is far from inspiring, even to the perma-bulls.
Technically, the second wave of damage confirmed the signals from the first
wave. To be specific, we saw the SPX fall under the 10, 20, and 50 day lines
two weeks ago. There was some support at 1176 (dashed), where the index had
managed to bounce a couple of different times. So we marked loose support
there. After Friday's close at 1167.82, the S&P 500 has officially made a
lower low after making a lower high.
There's a more subtle clue for the S&P 500 too. Both of the MACD lines are
now under the zero level. This happened for the NASDAQ several days ago, but
the SPX was managing to at least partially hold positive levels. That in itself
isn't a terrible problem, but the fact that we're seeing a new negative
momentum divergence (as of Thursday) is a bearish problem.
We're seeing an equally subtle bearish clue in our Directional Movement Index
(DMI) lines at the bottom of the chart. Like most indicators, we actually saw a
bearish crossover for the DMI lines several days ago, when the DMI+ (green)
line fell under the DMI- (red) lines. What's new, though, is the fact that the
DMI- line is on the verge of moving above the ADX (grey) line. For that to
happen, the degree of change in the highs and the lows has to be pretty
bearish. For an example of how the position of the DMI and ADX lines can
determine the strength of the trend, just go back to October. When the DMI+
line was leading the grey ADX line in late October and early November, the
market was racing higher. Once the ADX line 'caught up' with and crossed back
above the DMI+ line, the rally was slowing down. Now we see the opposite of
that chart. With the DMI- line leading rather than lagging, we know this
downtrend is very strong.
Like the NASDAQ, the next potential landing point for the S&P 500 is the
200 day line, at 1133.