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Sunday, June 26, 2005
Market Recap
The DOW suffered its second consecutive triple digit loss on Friday, dropping another 123 points. This collapse in the DOW has wiped out over one months worth of gains in just two trading days. On Friday, Oil closed at a new record high of $59.84. The NASDAQ was down 17 pints and the S&P lost 9 points. The DOW has had 5 consecutive down days and during this losing streak, the NASDAQ was holding up well until the reversal on Thursday as well as the follow through selling on Friday. The NASDAQ has been the recent leader lately but when the DOW drops 300 points in two days, we cannot expect the NASDAQ, or any index for that matter, to hold up against that pressure.
Convincing Volume
This sell off came out of nowhere and has damaged many of the charts. The volume on the selling is very concerning. It has been very heavy over the last two days and considering the light volume that took the markets higher in the recent rally; we can conclude that this selling is much more than just your normal correction or shakeout. Summer is here and we are not supposed to be seeing volume this heavy so when we see it like this to the down side, it can not be ignored. Not only was the volume super heavy but the technical breakdown through the 50 and 200 SMA's is a major problem that the DOW will have to face again.
DOW is Still the Leader? ….. Yes, but to the Down Side Now
The DOW was the leader of the market, coming off of the last decline. It rallied and lead the market higher and was the first index to cross above its 50 and 200 SMA's. Soon after the DOW, the S&P followed and then finally the NASDAQ had the bullish crossover and became positive. Now the DOW is leading the way down. This could be a warning sign that the other indices may follow. Right now both the S&P and NASDAQ are still above their respective 50 and 200 SMA's. This is bullish territory of course, but they could fade fast and follow the DOW.
VIX, no Panic Yet
A quick check of the VIX tonight indicates that there is no fear in the market, even after the two day plunge last week. The VIX is at 12 and needs to rise much higher before we can think about any bottom being put in. Right now, it is best not to try and catch a falling dagger. There is some support for the NASDAQ near 2050. The DOW has some support at 10250 but after that, it is back to 10000 before the next layer of solid support. The S&P crashed through 1200 like a hot knife through butter. The next support for this index is right where it is now, 1190. If it fails to bounce Monday, it could fall back to 1178. Again, all three indexes fell on super high volume the last two days.
2100, Strike 3 You Are Out
The market can be a difficult place to be at times. Just when everything seems like it is ready to breakout and move higher, it fails and bottoms out. All last week and the week before, we kept stressing the fact that the NASDAQ needed to break above 2100 for this market to move higher and become a raging bull. It made 3 attempts to do so and just could not do it. This 2100 barrier proved to be an insurmountable resistance to get through. We may have to wait for many weeks before we see another attempt at this troubled area. Many charts of individual stocks have suffered damage as well and it will take time to repair and set them up again. Until then, keep your powder dry and preserve your capital, it could be a long summer for those who fail to adhere to this recommendation.
Tonight I leave you with this thought. When the markets are going up, it is like hiking up a steep mountain. It is hard to do and it seems like it will take forever to get to the top. But when the markets are going down, it is like jumping from the top of that mountain. Your decent is with tremendous speed and force.
STHQ Chart Index
If you go to the chart index in the left side menu, you can review and study charts that we have annotated for each stock listed in the past.
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Earnings Calendar
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http://www.earnings.com
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