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Price Headley, CFA
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Price Headley was inducted into the Traders' Hall of Fame in 2007 and is the founder of BigTrends.com, which provides investors with specific real-time stock and options strategies and investment education to profit from significant market trends. Price appears regularly on CNBC, Fox News, and... More
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  • Nasdaq Depth and Bollinger Bands is a Concern for the Rally 0 comments
    Mar 30, 2010 11:43 AM | about stocks: QQQ, SPY, SPY, DIA, IWM
     Weekly Market Outlook (Technical Analysis, Economic Calendar, Sector Performance):

    We talked about this a week ago, and the idea gained some traction over the past five trading days. What’s that? Resistance at the upper 50-day Bollinger band (2 SDs). Though the NASDAQ gained 0.87% last week, it’s clear the rally is really struggling now.

    In the meantime, the resistance line that stopped the December rally – and sent the composite from 2300 to 2125 by early February – is lined up with that upper Bollinger band to work on sending the market lower again. All of that shows up on the chart below.

    While anything can and will happen, this is the point where the market’s odd start to work against it. Yes, there’s the possibility the NASDAQ could overcome the odds and hurdle both ceilings. And "the trend is your friend" -- we've definitely made more bullish trades than bearish recently in our Option Trading. But…


    Nasdaq Composite Daily Chart
    Nasdaq Composite Daily Chart with Bollinger Bands

    Market Depth:

    Though the market is up for the last two weeks, the engine’s running on fumes. Why do we say that? Though stock values are higher, the amount of buying has fallen off. Simultaneously, the degree of selling volume has grown over the last two weeks. The analysis is simply referred to as ‘depth’.

    On the chart of the NASDAQ Composite below, we’ve plotted the NASDAQ’s ‘up’ volume and the NASDAQ’s ‘down’ volume on a daily basis. Those are the pale, thin lines on the chart…. light green is bullish, and pale red (pink) is bearish.

    Since the daily data is too erratic to use, we’ve also plotted moving average lines on top of those tow pieces of data. They are the bolder, thick lines, intended to show more of the actual trend.

    Now, here’s the clue…two weeks ago, daily bullish volume for the NASDAQ exchange was averaging 1.4 billion shares, while the average bearish volume per day was scoring around 750 million. As of Friday, bullish volume came in at an average of 1.14 billion, and the daily bearish volume average was 1.12 billion shares. Yes, that’s still enough to be net bullish, but that underlying trend is one that should alarm the bulls – it’s on the verge of tipping bearishly (as is the market).

    We’ll continue to monitor this data and its day to day changes, though we’ll also add these undertow clues are right more often than not…. and they’re early, as we saw in January.

    Nasdaq Composite Up and Down Volume Chart

    Nasdaq Composite Daily Depth Chart

    Economic Calendar:

    Although a light week in terms of the quantity of economic news to work through, the weight carried by the data we did get was more than modest.

    The biggest news was on the real estate front. Existing home sales held steady in February, around 5 million, while new home sales hit another multi-year low – again – at 308,000. Both were basically in line with estimates.

    Although the disappointing new home sales number is far from encouraging, considering that more than 90% of the housing market’s sales come from existing home sales, the flattened existing home sales figure suggests we’re seeing the market basically hold up. Not so. Don’t forget, the existing home sales level has been falling too, peaking at 6.8 million in November. Factoring in that home priced edged lower again as well; it’s hard to say the real estate market is improving by any stretch of the imagination.

    That’s not to say the stock market can’t fully recover without an accompanying rebound in the real estate market, but it sure doesn’t help.

    New and ongoing unemployment claims also fell a tad, and were a split decision compared to forecasts. We’d consider both to be uneventful last week.

    And finally, Q4-2009’s GDP figure was finalized…. and adjusted downward from 5.9% (annualized) to 5.6%. From this point forward, GDP growth should be less impressive, as the year-over-year comparables are a much higher bar to hurdle. Plus, the second year of any recovery period is rarely as brisk as the first year. So, don’t be disappointed by what’s apt to appear as a slowing economy.


    Weekly Calendar of Economic Reports

    Sector Performance:

    The consumer discretionary stocks came out on top last week – a trend that’s actually been developing for quite some time. While we’re still mixed messages on the status of consumers, the market is largely betting that all these companies are making a revival. Not so. Pick and choose wisely within the group, as consumers are still fickle – though decisive – about the ‘wants’ they splurge on.

    Financials and technology are also still on their romp… surprise, surprise. Energy and utilities are still dragging the bottom; neither are total shocks.

    That said, bear in mind it doesn’t always pay to chase the hottest group, nor does it pay to avoid the weakest group. Things change. This ranking is only one aspect of what should be a multi-faceted tend-spotting process.

    Weekly Sector Performance Ranking

    Industry Performance:

    It’s been a while since we added an individual industry ranking, so here’s an updated list.

    Though it’s not always this clean, this time around it’s very easy to see which industry trends below are driving the sector trends above. Consumer electronics and vacation travel are boosting the consumer discretionary sector, while coal and energy services are dragging down the energy sector. The strength in drugs and the weakness managed care are likely to be post-healthcare-reform volatility.

    As before, be smart about how you interpret the data, but the numbers don’t lie.

    Industry Performance Ranking Table



    Disclosure: No positions.
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