Market Commentary 1:35 pm
note Qs nearing -2$ today
As of the time of this writing, the NASDAQ Composite made an attempt to cross back above the 10 day moving average line (red), but has failed. However, the day is far from over, and where the index ends when the closing bell rings will be the important indication. But even then, the flavor is more bearish than bullish. How so? A close above the 10 day line would only question the overall downtrend we've seen over the last three weeks, while a close under it would reaffirm what we already know - that stocks are headed lower.
Tuesday's upside move sprouted from a market that was very oversold. Stocks got hammered on Friday to top of a week that wasn't pretty bearish to begin with. (If you drop anything from high enough, it will bounce.) However, the market can get an itch to buy when the stochastic lines stay under 20 for a little too long. If you look back to March and May, after being stochastically oversold for a short time, the market roared - for a while. We're seeing the same kind of itch on the stochastic charts right now too. That's what sparked Tuesday's move, and this morning's strength as well. But as you can see, it can take several attempts to unwind that oversold problem
What was lacking in Tuesday's surge was significant volume. While volume wasn't light, it wasn't heavy either. And that's what you need to break any market trend - a heavy dose of volume on the key reversal day. Volume has been thin to begin with, and wasn't impressively bullish yesterday either. Today doesn't look like it's going to be any different, so we still have to assume that there is more selling interest than buying interest right now. That's why the Chaikin line is still pointed lower, confirming that the sellers outnumber the buyers.
So we remain relatively pessimistic on the NASDAQ. As we mentioned in a previous update, the floor for this downturn potentially lies at 1825, but it's not likely that the would-be buyers would wait that long before stepping in. Nonetheless, barring a close back above 1927, we're still looking for the tech-heavy NASDAQ to weaken for a while longer.
BOTTOM LINE
The trend is neutral to negative right now (depending on the index), but that's not entirely a bad thing. For you traders who can sell short or buy puts, you stand to see some decent downside moves (and you already have). Fortunately for the buy-and-hold folks, the downturn is going to be relatively contained. In fact, if we're not there yet, we do expect to be hitting a bottom soon. That will set up the 'best six months' of the year, so you may want to start looking for undervalued stocks you want to own for a while. However, none of that changes the fact that we're still in a summer doldrum. As long as the weather remains nice and investor's minds are elsewhere, the market should be just as choppy in the short-term as it has been in the last few weeks.
Enjoy the rest of the week!
Price Headley, CFA, CMT, President
with James Brumley, Research Analyst
Pennies not a zero sum game as much as some zero game.
AI
