Ralph Bloch’s Weekly Commentary
before Open ~ February 24, 2005
“10400 Support”
Monday: 2/21
President's Day. Markets closed.
Tuesday: 2/22
You want some news? I'll give you a weak dollar, oil surging above $51, a lingering confusion over Alan (conundrum) Greenspan, last week's PPI, plus a bunch of sell programs all day. The only good news was the fact that there was a reco on the semis. That helped move the market from minus 45 at the opening to off 18 at 11:00 a.m. The SOXX rose to plus 9, at best. A growing concern is the likelihood that Mr. G will continue raising rates in the face of the “conundrum”, which means he doesn't understand! When the head of the FOMC is in such a situation, the market sells off - the market doesn't like confusion. The A-D index was very weak all session and ended with a monster minus 1873. The DJI finished off 174, which was the weakest day since September. NASDAQ ended 28 lower, and the SOXX was off 2, even though TXN and NSM ended plus on the day. There were 10 DJI stocks off over 1 point that were 115 points of loss. Volume rose to 1.738, which is the highest in a while. Down-up volume was 1452-275, which was in-line. It was an ugly day all around.
So, the DJI has backed away from its “neckline” discussed last as it closed at 10611. Another example of waiting for a “breakout” paid off, as it never occurred. Once again - it pays to wait and pay higher to be more certain of a trend in force. We had suggested that while the first half of February was strong, the second half might not be - unfortunately, that's proving to be the case. The 10400 area was an area of support several times in November-December and then again late last month. Let's see if it holds yet again if the market sells off another 200 points or so. We will not be an automatic buyer there until we see signs of support once again. We await today's CPI (8:30 a.m.) and after last week's biggest jump in a year for the PPI, futures are mixed with little change. The market's oversold level is now minus 1.7, having been plus 5.0 just two weeks ago. If 10400 is in the cards, I'd like to see it get there fast and on rising volume - high volume tends to come closer to the end of a move as opposed to signaling the beginning - most of the time!
Wednesday: 2/23
A little respite from Tuesday's bombing as the CPI came in lower than expected. That helped the market open 46 higher and close plus 62-1/2 points higher on reduced volume of 1.495 billion - volume still too low. However, up-down volume was 1020-445. There were five DJI stocks that accounted for over 49 points. The nagging problem in addition to the volume is the underperforming tech sector. NASDAQ and the SOXX index rose 1 and fell nearly 2 points, respectively. We could sure use some full participation by the techs. Yesterday, S&P lowered growth estimates for the semis to 5%, down from 8% - that's what hurt. At 10:00 a.m., the A-D index was plus 1151 with the DJI up 30. Final readings showed 863 net positive vs. a 62-1/2 point gain. So, yesterday was a contra-trend bounce that was accompanied by poor tech action, low volume, and lackluster breadth! Both the $ and oil calmed down after Tuesday's uproar, and that helped things a bit.
Conclusion:
The DJI closed at 10674, which obviously keeps it above the 10400 support level discussed yesterday. So, the right shoulder remains intact. Just maybe the market continues to move laterally until some further rate hikes get washed through the market.
If the market and the economy don't crumble, then a larger “H&S” pattern develops and breaks out - similar to 1995. Something to think about! As of 6:30 a.m., futures are all below fair value. Let's see if we can avoid another rout and have the market recover from a lower opening and settle down a bit.
Ralph Bloch
Senior Vice President
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