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SHARP DECLINE LEAVES MARKET SHORT-TERM OVERSOLD

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By Harry Boxer, The Technical Trader (www.thetechtrader.com)
The market had its fourth day of declines off the June 14th top. The session started out with a rather large gap down. We had a brief try at a rally, which failed & the indices went sharply lower very quickly and then stabilized until about the lunch hour. At that point , after forming bear flags and not being able to rally above resistance, the market took a third leg down to near the lows for the session.

We then had an early afternoon rally attempt that failed at resistance and then a late-afternoon decline that took us right back down to the lows on the Nasdaq 100 at 1250. That held, creating an intraday double-bottom, so the market rallied late in the session.

The S&P 500 loss wasn’t quite as spectacular and neither was the Dow, but net on the day it was still a down day and a fairly ugly one. The Dow was only down 43.77. That was about 33 points off the low, so it recovered about 40% of its losses. The Nasdaq was much worse today, down 50 on the Composite and 36 on the 100. The Nasdaq Composite closed under 1700 for the first time in 10 days. The S&P 500, down 12 and change, closed down near key support around 980, closing at 981 and change after dipping slightly underneath that.

A review of the technicals showed how ugly the day was and confirmed the negative decline, especially on Nasdaq where advance-declines were 25 to 6 negative, nearly climactic. Up/down volume was 10 to 1 negative with 1.7 billion to the downside and about 172 million to the upside. Nearly 2 billion shares traded today on Nasdaq, a heavy day, and it looked sort of climactic at one point. NYSE advance-declines were a bit better but not much, about 3 to 1 negative. The up/down volume was about 4 to 1 negative with a total of about 1.6 billion traded.

So Wall Street had a negative day and for the first time in recent memory my personal board showed 100% losers. They were led by market leaders IBM down 3.41, QLogic down 4.81 on an earnings report and several others such as Broadcom down 1.91 and Emulex 1.63. That really hurt the SOX Index, which, by the way, was down nearly 17 today, or about 5%.

In the lower-cap sector, OmniVision made a new 52-week high at 40 ¼ but reversed sharply and closed down 2.65 at 37. Several other stocks had sharp drops. FindWhat.com dropped from 23 to 19.60, closing at 20, down 3 ¼. TIVO was down 1.37, and the Asian Internet stocks once again got hammered, with China.com down 1.84 and ASIA down a dollar.

Stepping back and reviewing at the chart patterns, the hourly charts reveal that we have come down to the 1250-60 support zone, which was key support on the Nasdaq 100 and held there on a couple occasions today.

With the NYSE McClellan Oscillator now heavily oversold short-term at -241, we could very well see a bounce back rally tomorrow.

The S&P 500 has slightly broken short-term support at 985, getting down to around 978 before snapping back a bit to close at around 982. So we’ll see if that’s just a nominal break and whether it can rebound as well.

The S&P 500 has now dropped from 1015 to 978 in just four sessions and is also near its intermediate rising trendline. So again, cause for optimism short-term in terms a potential snapback rally, which I’m looking for tomorrow.

Good trading!

Harry