The market had lost its 50-day exponential moving averages across the board earlier this week. A deep move below on the Nasdaq. Far less so on the S&P 500 and Dow. Wednesday saw a near-term bottom being made when things got very oversold on the short-term 60-minute charts. The bounce began right away on Thursday morning with a nice gap up that followed through most of the day on the SPX and Dow, but lagged badly on the Nasdaq. Overnight on Thursday we had news on two fronts. First, we had Government intervention to try and bring down the yen. The market liked this. Then we had news that Libya was having a cease fire, and the market rocked up on the futures nearly 150 Dow points. Oil rocked lower than 3$ on that news. The market had two solid pieces of news to work off of now. Add in Cisco Systems, Inc. (CSCO), finally giving a dividend, and things were set up to march higher.
We gapped up and died immediately. The Nasdaq began to massively under perform and threw a nasty candle for the day. Not as bad on the S&P 500 and Dow, but not great by any means. The key here, being that the S&P 500 got within 5 points early in the day of testing its lost 50-day exponential moving average. It failed from there the rest of the day. The good news from all over is still not allowing a recapture. Oh so close, but oh so far away. Nothing to talk about on the Nasdaq as it was at least 2% below its 50-day exponential moving average all day long. It’s by far the weakest index chart around, but also becoming the most oversold. As long as we’re below the 50’s you can’t get excited, thus, the week ends on a weak and poor note. A loss of the 50’s that back tested, but for now, failed on the S&P 500 and Dow. No clear bottoming situation at hand.
The index charts have done quite a bit of unwinding off the highs printed some weeks back from Nasdaq 2843. More than 200 points from the top to the intra week lows. RSI’s have gone from the 80 area on the Nasdaq down to the upper 30’s. Stochastic’s have gone from near 100 down to the mid teens. MACD has plunged from +55 to -28. Huge push downs on the oscillators without question. It tells you that we’re getting close to bottoming out. But you can’t count out another new low, or at least a retest of the lows, from earlier this week, which was 1249 on the SPX. It would be perfect in the bigger picture if we could see -40/-50 MACD on the Nasdaq along with 30, or below, on the RSI. Stochastic’s sub-10 would be ideal. You don’t always get ideal. That’s just the way it is. So we have to watch if the oscillators have done enough unwinding or not. Lower would be best. We failed at the 50’s, so we can hope for a drop lower first. Bottom line is we have had a lot of solid unwinding, which is what we ultimately needed.
Rotation is still occurring in this market, which is stunning when you realize how deeply we have come off the top. Through it all we have watched dollars rotate around, which has prevented a much more intense selling period. It really hasn’t been all that much to be blunt about things. 7%, or so, off the top, which most won’t even consider a pullback. Just noise. When you take 200-plus points off the Nasdaq it’s good selling for sure, but it is amazing how things rotate from sector to sector as one gets overbought and the next one gets oversold. This is true bull market action. In a bear market, if that were beginning, you would see lots of selling everywhere without money flowing in to oversold areas. This is what pullback’s look like but we haven’t seen a true bottoming stick as of yet. It doesn’t mean that will happen, especially since we are rotating, but for now, money is not leaving all areas of this market.
It’s a time for patience as the S&P 500 has support from 1249 down to 1225, and further down towards 1200. 1293 is massive resistance, and the only resistance that matters right now to be honest. It’s all about getting through the 50-day exponential moving average. Until that occurs anything else is meaningless for the bulls. If we lose the last low just set a few days ago at 1249, there is 1235 gap, but we’d probably try lower towards 1225 to 1200. The Nasdaq is broken big time, but unwinding beautifully. 2550/2530 is great support. The lower we go the better the opportunity presenting itself. Let things unfold in the days and weeks ahead and be very patient. The more patient you are the better you’ll perform when we get towards the bottom of this pullback.
Do something nice for someone this weekend. Enjoy a child’s company.
Peace,
Jack
