Read This Part 2

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24 سبتمبر 2001
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#1
Pullback or Push Higher?

At best, I'd label this week's earnings reports cloudy. The
bar was lowered so much, especially by tech companies, in the
preceding months that many companies have been able to stumble
over their estimates. The question that has yet to be answered
is whether or not third-quarter numbers will be the trough in
this down cycle of corporate profits. It might be so for some
companies, but I don't have the answer yet.

In the meantime, I'd like to point out a few developments across
the major market averages this week. For a few weeks, I had
been writing about the overbought nature of the averages as
measured by Stochastics. Last Wednesday's reversal did a lot to
work off the overbought status of the averages. Then, last
Friday, the averages rebounded into the close then followed
through in Monday's trading. That sequence of events caused
a crossover to the upside in Stochastics across the Big Three
averages: Dow, S&P, and Nasdaq. But Tuesday's reversal across
the averages didn't offer any insight into short-term direction,
which begs the question: Was the recent crossover in Stochastics
on daily charts merely "noise."

I won't pretend to have the answer to that question. But I can
set forth some levels to help find the answer in the coming days.
In the S&P 500 (SPX.X), I'm still watching the 1085 area, which
is a retracement level that I've been writing about for a while
now. The 1085 level has been acting as price magnet of sorts,
which continues to attract the SPX. If the SPX continues to find
bids around 1085, then I think it has a shot at breaking above the
1100 level in the coming days, eventually working to relative
highs. Any forthcoming breakout attempt above 1100 should have
some staying power because the SPX has worked off its overbought
nature as measured by daily Stochastics. Recall that last
Wednesday morning the SPX tried to advance past 1100, but the
buying pressure had been exhausted at that point, so there wasn't
anybody left to carry to index higher. I can conclude that buying
pressure was exhausted last Wednesday because Stochastics were so
overbought.



If the SPX does attempt to breakout above 1100 in the coming
days, I'll be watching for participation across several key
sectors, including Bank (BKX.X), Tech (SOX.X, NWX.X, GHA.X),
Energy (OSX.X, OIX.X), Retail (RLX.X), and Cyclical (CYC.X).
If I don't see broad participation in a breakout attempt, I'm
less convinced of the move.

To the downside, there aren't many near-term levels to reference
in the SPX. The closest meaningful support level that I can find
in the SPX is at 1050, which is more than 30 points away from
Tuesday's close. Until that level is lost, I think we could see
a lot of "noisy" trading in between levels.

The Dow Jones Industrial Average's ($INDU) technical set-up is
pretty close to the S&P's. For its part, the INDU is churning
around its 50 percent retracement level at 9250. Again, Tuesday's
reversal didn't offer much insight into shorter-term direction.
So I'll be watching for either a breakout above 9500 in the
coming days, or a breakdown below 9100.

In the event of a breakout above 9500, I would confirm any such
attempt with an advance past the 61.8 percent retracement level
at 9525. If that is cleared on any rally attempt, then I think
the INDU could work up around 9750 over the short-term. And like
the S&P, I think that a breakout in the INDU can be pursued
because there aren't as many buyers around as there were last
Wednesday morning, which means demand could build on a breakout
attempt.



To the downside, the INDU has some support at 9100. And if it
doesn't breakout above 9500 in the coming days, it could
grow top-heavy, which could lead to the re-test of 9100. Below
9100 sits the 9000 level, which is the BIG near-term support
level that I'm monitoring.

The Nasdaq-100 (NDX.X) is in-between levels and more difficult
to get a read on currently, at least for me. The NDX finished
fractionally higher Tuesday, and there were many mixed signals
within the NDX as measured by the randomness of its sectors,
such as the Internets up 1 percent, while Chips and Biotechs
finished lower by almost 1 percent each. Without the
participation of the Semis (SOX.X) and Biotechs (BTK.X), the
NDX.X will have a hard time advancing over the short-term.
But if those two sectors rebound Wednesday, I'll be watcing
for the NDX.X to advance back above 1400. From there, the
two levels to monitor are 1420 and 1440, Tuesday's high and
last Wednesday's high, respectively. Above those two levels
lies the NDX.X's retracement level at 1460, which should
serve as meaningful short-term resistance.



To the downside, the range between 1350 and 1360 could serve
as support, but I tend to believe that those levels are more
random than anything. The NDX's Bullish Percent chart just
recently reversed into a column of 'Os' which hints towards
profit taking in the index. For that reason, I'd prefer to
be bullish on strong NDX stocks near support instead of chasing
stocks higher near resistance. In other words, buying stocks
near support makes more sense to me, if one were bullish on
NDX components.

Tuesday's reversal offered little, if any, insight into future
short-term direction. In fact, it went against the crossovers
in the major market averages' Stochastics readings. One
could argue that the continued anthrax fears was the reason for
the reversal, while others might suggest that Tuesday's
reversal was due to profit taking. Additionally, with the
averages between major support and resistance levels, it's hard
to have a lot of conviction either way. That's why in times of
uncertain short-term price action it makes sense to do less in
the form of trading smaller, which is what I've been doing so
far this week.

What I'd like to see in the coming sessions is progress in
either direction, up or down, I really don't care so long as
the averages move. The worst kind of market is the one that
does nothing because I'm an impatient person. And impatience
generally leads to losses. Pick your spots and be tough.


(TO BE CONTINUED )
 
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