We had a very bad earnings report last night from Finisar Corp. (FNSR). The affect was pretty wide spread in the technology arena. We had oil refusing to move lower. The market should have collapsed under the weight of these events but found a way to hang tough as usual. That doesn’t mean there weren’t bad stocks out there, especially in the world of commodities. Take Freeport-McMoRan Copper & Gold Inc. (FCX), for instance. No need for further talk on that play. Scores of stocks in that area of the market that took absolute beatings, yet the market, once again, found rotation away from the bad areas to keep things from falling apart. Truly amazing work by the bulls to keep things alive another day, although the market is acting more and more as if it wants to crack as oil just refuses to lose 103.00, the area from which it broke out. If it doesn’t lose 103 sooner than later it’s destined for dramatically higher prices, thus, the market is destined for a truly nasty correction.
That’s unclear, of course, at this time. It’s just spinning in the 103-106 range. We’ll get our answer soon enough I’m sure. The Dow and S&P 500 refuse to cave in, and, for now, are holding the market up. The market seems to be running in to lower P/E and lower beta plays. This is why the Nasdaq is on the edge and barely holding its 50-day exponential moving average while the Dow and SPX are well above. When you add it all up, it’s hard to believe just how well the overall market is holding up in the face of an oil breakout in price technically, and how well things are considering some of the horrific price action seen in individual leaders today.
One sector that has been leading this market to the upside is the semiconductor stocks. They have been annihilated over the past few trading days with today being particularly bad. They are now undeniably down trending. Normally this means the Nasdaq is going much lower, and that may still be the case, but, yet today, it held up just fine. Don’t take that as good news. The index can lag. If the semis keep performing like they did today, over the next several days and weeks, the Nasdaq has no chance to hold its 50-day exponential moving average. Lots of heavily weighted stocks in this area, and when studying them, they have moved up quite a bit and were on high poles. Thus, they really do need to correct for some months. Not straight down, but a couple of months of lower highs and lower lows looks imminent there.
Novellus Systems, Inc. (NVLS), KLA-Tencor Corporation (KLAC), Cavium Networks, Inc. (CAVM), Diodes Incorporated (DIOD), Cymer Inc. (CYMI), and others were just slaughtered today. If you looked at those charts after coming home from work, before looking at the market, you would have thought the Nasdaq was down 75 points today, if not more. The Nasdaq will give out soon if the semis don’t get going, and they don’t exactly look bullish right now. The semis and the market need oil to fall apart in the worst way. Losing the semiconductor stocks today puts the Nasdaq on notice that it may not be looking down at its 50-day exponential moving average much longer.
When looking at the daily index charts we see a decent amount of unwinding on those critical oscillators such as stochastic’s, MACD and the RSI. Good to see that take place without too much price depreciation. However, they are far from oversold, and there is plenty of room for them to run lower should the market have enough excuses to finally break below the 50-day exponential moving averages. Average stochastics are near 40 with RSI’s near 50. The stochastic’s can get to 0/10 while the RSI’s can get to 30. Oversold would be amazing. Offer up amazing opportunities for the long-term. Will we get it? I think there’s a real shot. One more blast up in oil and that should get the job done. Maybe the market doesn’t even need that. Maybe there are enough frothy overbought stocks to do the job even if oil doesn’t spike from here.
We’re long so you always root for higher prices when this is the case. Deep down, I have to admit, I would love a deep correction that offers up such a great opportunity. Match up a positive divergence on the short-term 60-minute charts with the daily charts at, or near, oversold and you have magic for aggressive long playing. One day at a time as the market hasn’t lost its symmetrical triangle, or even close to doing so when you look at the Dow and SPX. Only when that happens can we get the type of selling that will bring the daily charts to oversold for the first time in nearly a year.
It’s hard to know what our government will do if oil gets out of hand here. They can intercede and use reserves that are put away. That alone would knock the price of oil on its can. But that would help the stock market, so I guess they’ll make that decision when they think the cost of gasoline will slam the country down in to recession. If oil gets to 4/5$ per gallon the economy will stop dead cold. The President and Mr. Bernanke, I’m sure, won’t put up with that too long. So you can bet they have a plan for the right time to interfere with the natural order of things once again.
This is common practice so it’ll be another day at the office. Do whatever it takes to keep the market alive and the economy moving happily along, even if it’s a jobless recovery. Just stimulate, interfere and stimulate some more. We watch and learn as we go along here. For now, the market is dancing about and holding key 50-day exponential moving average support. The Nasdaq is close to losing it. We’ll know more shortly.
Peace,
Jack
