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Tuesday, September 07, 2004
Good evening friends,
Market Recap
It was a good start to the week in the markets after the Labor Day Weekend with the Dow closing up +80 points and the S&P gaining +7 points. Both of these indexes continue to hold above their respective 200SMA's. The NASDAQ had a nice gain of +14 points, but it is still below its 50 and 200SMA I will continue to monitor these key averages on the NASDAQ, because I cannot turn bullish until the NASDAQ can move above these two key averages.
The market jumped out of the gate with a gap up at the open on the NASDAQ which was later filled intraday with a test of the 1850 support level and closing up off its lows. Oil was down after an announcement from OPEC regarding world oil supplies. I believe some of today's buying was also due to the recent polls that shows Bush having a 10-12% lead on Kerry after the RNC.
We did see an increase in volume today, but the overall volume continues to be less than stellar on all three major indexes. I was expecting to see more volume after the long weekend; however it is possible that there is still too much uncertainty that is keeping the institutional investors on the sidelines. As I keep stating almost every night, the volume needs to increase before I will turn bullish on this market and believe in this rally. I mentioned in the market update earlier in the day that the DOW was approaching its upper trend line. Tonight's chart of the DOW shows that even though the index is above its 200SMA, the trend line needs to be taken out before the buyers will return. Another reason I am cautious when going long. As with any resistance, it may not get taken out the first attempt. The confirmation will be when the volume is well above average on a close above the trend line.
The NASDAQ is the chart to watch, and it is keeping me the most cautious to the upside. As I mentioned it is still trading below its 50 and 200SMA and the DOW will have trouble advancing without participation from the NASDAQ. The SOX index continues to weigh heavily on the NASDAQ right now, losing another 1.1% today after Friday's big sell off due to the disappointing Intel news. The SOX chart looks very negative right now and without the SOX participating, the NASDAQ will continue to struggle to the upside.
Fixing Charts
The market has been bearish for some time and many stocks are trying to find a bottom. I am not convinced that we have seen a true bottom, although there are some minor indications otherwise. When the market is set to rally, stocks will not automatically gap up and run to new highs. Often times, stocks will take small upwards steps and fall back as they form new bases. If the base fails, we know the stock is not ready to run. If those minor pullbacks begin to occur on light volume, the charts will begin to set up into bullish patterns we like to see. Then we can begin to have some confidence that stocks are getting ready to run.
There are exceptions in the stock world where stocks explode upwards with no indication they would take such a leap. They are rather rare occurrence though, and ones that cannot be predicted. If you look at the chart of a stock that has just gone to the moon, chances are you would never have considered a position in the stock given its chart at the time.
As the markets do see the volume come back, more charts will start setting up again. Right now, most charts are not ready. The majority of stocks today will need a time to fix what the markets have done to them in recent months.
OTC BB Watch List
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