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Thursday, March 10, 2005
Market Recap
Another wild ride in the markets today as early on, it looked like the Nasdaq was headed for a big down day when it moved below key support at 2050. The Nasdaq weakness also pulled down the Dow. It dipped down near the trend line that I showed on the chart last night. However, we have come to expect the unexpected and shortly after 11:00 EST, the buyers stepped in and rescued the markets from what could have potentially been a finishing blow to the Nasdaq for the short-term. The Nasdaq did close in the red, but well off of its lows for the day. The Nasdaq finished lower by –1 point. The more technically sound Dow did much better and closed higher by +45 points and the S&P finished up by +2 points.
I mentioned that the Dow bounced down near a very important trend line. This trend line was established with the lows from October of last year. A breach and close below this line would have been very bad for the chart, therefore a strong bounce off of that line is very positive for the short-term. The Dow now sits above the trend line and below the double top resistance that I have talked about many times. The next step to recovery is a strong move back up through resistance at around 10875 with a close above price resistance of 10900. The Nasdaq, despite bouncing, is still technically in much worse shape than the Dow. It is still below the 50MA currently at 2075, which also happens to be strong price resistance. 2075 is an important level but ultimately we need the Nasdaq to breakthrough the double top at 2100 before we can count on tech stocks to make any substantial moves higher.
Help may be on the way for the Nasdaq as Intel released their mid-quarter update after the bell. So far the street has reacted positively in after hours trading. The highlights of their report were raised sales guidance to the high end of previous estimates. More importantly, they raised their profit margin outlook. Higher profit margins are an indication that they are not having inventory issues due to oversupply. Hopefully the positive reaction to Intel in after hours translates to a strong day for the Nasdaq tomorrow. One good report from Intel does not repair the chart so I will continue to be cautious with tech stocks until the Nasdaq flexes its muscle and starts leading the way.
Do the Markets Have Gas?
It has been one of the strangest markets that we have seen in quite sometime. The general markets are marching towards the upper end of their range, and every indicator would make you think we are ready to get into a very strong bull market. So why is it that strong stocks are struggling to make new highs?
There is no reason for us to be seeing the market conditions that we have seen recently. Stocks are strong, confidence is strong, and so is the economy in general. We are seeing decent job growth as well. The one thing that seems to be sticking out there is oil. Oil and gas are approaching all time highs. Oil drives the economy in many cases, and because it is up over $50 again, I think we are seeing some the effects. Gas has been creeping up slightly, and we are getting ready to enter the spring season. A traditional start to the driving season is rapidly approaching and gas is getting set to jump ahead of the season.
The markets may be overreacting to the pressures caused by high oil and gas prices. The economy is strong, but high fuel costs can sidetrack growth temporarily. The one positive in higher fuel costs is that it may help to keep the Fed in check with interest rates and that is good for stocks. They still need to be cautious though about the overall economy, ensuring that we maintain the growth.
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