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Wednesday, March 16, 2005
Market Recap
Today the markets reacted exactly as expected, based on the negative news that was released before the opening bell. The commerce department reported that the trade deficit hit an all time high. GM then announced that they are cutting their earnings estimates for the year in half and also stated that the current quarter is unlikely to be a profitable one. The futures reacted to this news accordingly and the selling started from the bell and continued the entire day. The NASDAQ finished the day lower by –19 points, the Dow racked up triple digit losses of –112 points, and the S&P closed lower by –9 points. To add insult to injury, oil managed to close the day at an all time high. The timing of these events could not have come at a worse time from a technical standpoint as the charts of the indices were already in jeopardy of breaking down. One bright spot today was the better than expected housing starts number that kept the homebuilder stocks in the green. With a better market day, we would have seen the bounce that we have been waiting for on these stocks.
Today's action breached many key short-term support levels on the charts of the major indexes. All 3 major indices are now trading below their respective 50SMA. The NASDAQ has been trading below its 50SMA for quite some time, so now that both the DOW and S&P are below theirs, we will need to watch the 200SMA on the NASDAQ currently at 1992. In order to keep the bulls interested in this market, what must happen now on the DOW and S&P is a quick bounce and close back above their 50SMA. I believe that there is a chance that this may happen tomorrow, however I would not be buying stocks at the open tomorrow expecting it to happen. If there is one positive that can come from a day like today, it is the fact that we are now short-term oversold.
Looking Ahead
Taking a closer look at the NASDAQ chart, despite the fact that it is trading below its 50SMA, I think we have a good chance for a decent short-term bounce if we can get back above 2023. This level is only 8 points away from today's close, so a move and close back above this level tomorrow is within reach. If you have been a member since January, the 2023 number may sound familiar. It is the level that we used to enter long back in January. 2023 is the 50% Fibonacci Retracement level from the September lows to the December highs. It also happens to be the low in February. A close above this level, combined with a close above 626 on the RUT small cap index, should keep the bulls interested for the short-term. The SOX is barely hanging on as it managed to close just above its 200SMA. A close below this level and the SOX will almost certainly drag the NASDAQ down to its 200SMA.
The recent strong down volume cannot be ignored, so while we need to keep an eye on the 2023 level, we will also need to watch the volume on any bounce that we do get. Take a look at the volume 2 days ago and compare the bounce back up to 2050 to the down volume today and yesterday. It is easy to see after the fact but it should have come as no surprise that Monday's move on light volume did not hold. Volume will always indicate how strong or how weak a move in a stock is and the indices are no different. The down volume far outweighs the up volume since January 1st on all of the indexes. This trend needs to change soon or the markets will have no chance of sustaining any meaningful gains.
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