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Caution Drives TradingPosted by securities on: 2006-03-09 09:22:51
Stocks traded with uncertainty on Wednesday as the markets swung between negative and positive territory throughout the trading day. The blue chip DOW edged higher for the second consecutive day, advancing 25.05 points to rebound back above 11,000. Technology issues continued to trade with a negative bias driven by valuation and growth concerns. The NASDAQ fell for the sixth time in the last seven sessions, giving up 0.92 points. The small-cap Russell 2000 and S&P 500 were flat, up 0.78 and 2.59 points, respectively. The Russell 2000 remains below its key 20-day moving average. The underlying technical strength is suspect. Breadth improved yesterday but sentiment indicators were weak for the second consecutive day. If the Relative Strength fails to regain some altitude, we could see more downside moves in the near-term, albeit the market may inevitably see some buying support driven by an oversold condition. Trading volume was relatively strong on the NASDAQ, a negative sign given the down day. Trading volume on the NASDAQ came in at about 2.166 billion shares, above the 5-day and 10-day moving averages of 2.16 billion and 2.04 billion shares, respectively. The higher volume on the NASDAQ on down days suggests continued nervousness towards tech stocks On the NYSE, about 1.76 billion shares traded on Wednesday, above the 5-day moving average of 1.68 billion shares, as well as the 10-day moving average of 1.63 billion shares. The near-term technical picture for the NASDAQ is moderately bearish. The Relative Strength continues to be weak and is below neutral. Further weakness in the RSI could drive the index lower. The index remains below the 20-day and 50-day moving averages of 2279 and 2277, respectively. Failure to rebound could see a move towards the 100-day moving average at 2232. The index failed on three previous occasions to break over 2340, suggesting a potential multiple top formation. The MACD for the NASDAQ reversed to negative yesterday and flashed a moderate sell signal. The MACD trend is negative. The minor trend is negative. On the blue chip side, the near-term signs for the DOW improved to neutral on the upside break above the 50-day moving average of 10,918. The Relative Strength improved to neutral. The DOW may see more weakness if the RSI fails to hold. The index remains just below its 20-day moving average of 11,017, but it did manage to break above it during yesterday�s session. On a positive note, the 20-day and 50-day moving averages are rising. Watch if the index can break above its 20-day moving average today with authority and move towards 11,089 and the four-week high of 11,159. Failure to do so could see a move back towards the 100-day moving average at 10,778. The Bollinger Bands on the DOW remain wide and showing some signs of capping. The MACD has reversed to negative, which confirms the minor downtrend. On the long-term DOW chart, there is a converging of the rising trendlines indicating a potential bearish Wedge may be in the works, albeit it is still too early to confirm this. But given the selling in recent days, the DOW is marginally oversold so we could see some near-term buying support. On the S&P 500, the near-term picture is moderately bearish. The Relative Strength is below neutral. The RSI will need to improve for the index to go any higher. The index remains just below its 20-day moving average of 1,280 but rebounded back above its 50-day moving average of 1,276. The 1,260 level remains a key support point to monitor. The MACD is trending down and is negative. Below 1,260 is the 100-day moving average at 1,254. On the small-cap side, the Russell 2000 is moderately bearish. The Relative Strength is below neutral. The index remains below its key 20-day moving average of 728.51. Failure to hold would be bearish and see a potential move to the 50-day moving average of 715 and the lower pivot point at 708. The MACD is showing a sell signal. Market breadth has been weak in recent sessions. The advance-decline line on both the NYSE (0.97:1) and NASDAQ (0.91:1) was below 1.0 for the fifth straight day but showed some improvement yesterday. The 5-day moving average for both the NYSE and NASDAQ is below 1.0. The new high new low ratio (NHNL) was weak for the second straight day. The NHNL ratio on both the NYSE (54.01%) and NASDAQ (55%) was below the bullish 70% level, a red flag and warning of declining sentiment. We have not seen two straight days below 70% since December 29/30. Whether this is a turning point is uncertain at this time, but you need to monitor the situation. The current technical picture for the four key indexes is as follows: NASDAQ: Moderately Bearish; Relative Strength: Below Neutral DOW: Neutral; Relative Strength: Neutral; Marginally Oversold S&P 500: Moderately Bearish; Relative Strength: Below Neutral RUSSELL 2000: Moderately Bearish; Relative Strength: Below Neutral Here is what to watch for on Thursday. The near-term technical picture and underlying breadth continues to have a bearish bias. The blue chip DOW is showing the strongest technical strength at this time. The Relative Strength remains relatively weak, suggesting potentially more downside moves in the near-term unless it can pick up. The MACD on all four charts are showing a sell or near sell. Trading may continue to be mixed today. Watch the potential downward bias. Watch for some potential buying support. The key is how the downside support levels hold. Note: you are welcome to post this article on your site if it is financial related. You must cut and paste the bio and make sure the web site link is live. Also please e-mail me to let me know. George Leong is the founder of Investornomics.com http://www.investornomics.com- a provider of independent stock and option trading commentary. He has a degree in finance/economics and offers over 15 years of research experience in investing and trading. |
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