A Few Thoughts After the Close:
The overall market moved sharply higher yesterday in a relatively broad based move that saw basically every sector index I track move higher on the day. The strongest sectors were the N.A. Telecom, Banking, Airlines, Biotech, Oil Services, Oil & Gas, and Utilities. Oil was higher by $2.50 to $87.88 per barrel, and Gold was higher by $15.40 to $1,756.40 per ounce. Wheat was higher by $0.10 to $7.12 per bushel, and Corn was higher by $.054 to $7.072 per bushel.
I’ll be back in the morning with a few thoughts on the market from a technical perspective.
A Few Thoughts Before the Open:
Last week was probably one of the wildest rides in the history of the market. While it might be tempting to think the after 2 solid days of upward movement that the downward pressure on the market is gone, I would like to offer a few thoughts and words of caution.
In Technical Analysis, the study of charts, certain indicators have very significant importance. One of these is the 9-Day moving average of a stock price. For the lack of better description, the 9-Day moving average is somewhat of a neutral point from which the price of the stock doesn’t want to get to far away from. To further aid in the analysis of a stock’s price relationship to its 9-Day moving average, market technicians will plot the standard deviations from the 9-Day moving average. What is important about this is that this is used to determine an over-bought and an over-sold condition of a stock or index.
I mention this because despite the market’s strong rally at the end of last week, the major market indices and most of the sector indices I track only really managed to rally back close to their 9-Day moving average. In other words, the rally last week in the market only really helped the market recover from a severely oversold condition; and is not signaling the start of a move higher. This isn’t to say a rally higher might not occur, I am just saying it is not baked into the cake yet.
In looking at the charts from last week’s activity on the individual stocks it is very clear that a significant amount of technical damage has been done to the market. I think the market landed in a form of no-man’s land. I think it could take 1 to 2 weeks for the market to get a clear indication as to the direction it wants go from here. My expectations are for it to track sideways for a while and then make a break to either the up or downside.
In looking at the various indices I track, I have the following comments.
Dow Jones Industrial Average: The Dow Jones Industrials closed at 11,269.02 I continue to see upside resistance on the Dow at 11,444.08 and downside support at 11,006.22 on a closing basis.
S&P 500 ‘SPX’: The S&P 500 closed at 1,178.81 I see upside resistance on the S&P 500 at 1,225.85 and downside support at 1,127.79 on a closing basis.
NASDAQ 100 Index ‘NDX’: The NASDAQ 100 closed at 2,182.05 I see upside resistance on the NDX at 2,192.96 and downside support at 2,100 on a closing basis.
The Dow Jones Transportation Average: The Dow Transports closed at 4,622.58 I see upside resistance on the Dow Transports at 4,749.99 and downside support level at 4,320.05 on a closing basis.
M.S. Commodities Related Equity Index ‘CRX’: The ‘CRX’ closed at 882.30. I see upside resistance on the ‘CRX’ at 924.89 and downside support at 847.10
KBW Banking Index ‘BKW: The ‘BKW’ closed at 19.99. I see upside resistance on the ‘BKW’ at 34.28 and downside support at approximately 6.74 (a level not seen since 1989) on a closing basis.
S&P Banking Index ‘BIX’: The ‘BIX’ closed 112.62. I see upside resistance on the ‘BIX’ at 117.52 and downside support at 100.96 on a closing basis.
Amex Broker/Dealer Index ‘XBD’: The ‘XBD’ closed at 89.73 I see upside resistance at 92.97 and downside support at 80.87 on a closing basis.
S&P Insurance Index ‘IUX’: The ‘IUX’ closed at 161.12 I see upside resistance on the ‘IUX’ at 175.13 and downside support at 143.80 on a closing basis.
Amex Gold & Silver Index: The Amex Gold & Silver Index ‘XAU’ closed at 206.55 Despite record high prices in the price of Gold, the ‘XAU’ is actually down 12.65% year to date. I see upside resistance on the ‘XAU’ at 208.78 and downside support at 189.48 Unfortunately as of right now I have no clear indication as to the direction of the ‘XAU’. My thoughts are that we are going to need a few more trading days to see a clearer picture on the ‘XAU’.
Amex Oil & Gas Index: The Amex Oil & Gas Index ‘XOI’ closed at 1,129.01 I currently see upside resistance on the ‘XOI’ at 1,141.92 on a closing basis. I am expecting the ‘XOI’ to continue to move lower and test 1,093.89 on a closing basis.
M.S. Cyclicals Index: The M.S. Cyclicals Index ‘CYC’ closed yesterday at 881.21 I currently see upside resistance on the ‘CYC’ at 913.44 and downside support at 868.97 on a closing basis.
M.S. Consumer Index: The M.S. Consumer Index ‘CMR’ closed at 690.36 I currently see upside resistance on the ‘CMR’ at 691.44 and downside support at 649.86 on a closing basis.