Monday, August 07, 2006 Weekend commentary

The modest rally in the tech averages [NASDAQ and NASDAQ 100] ran into their next challenge of the 50-day MAs. It was a step too far for the indices, but subsequent retreats were able to hold the bulk of Thursday's gains. Friday's action was the ideal short entry for traders selling resistance, so a break of Friday's highs should see plenty of upward momentum as shorts are forced to cover. The semiconductor index reversed just shy of its 50-day MA, bumping off what had been a reaction low in June. Downtrends are still in effect for the tech indices.

The breakout in the Russell 2000 was followed with a volatile Friday, but the relatively flat close was enough to maintain the breakout (even if prices got pegged back by the 200-day MA overhead). Large caps ran into troubles of their own. The Dow stalled at 11,324 resistance, but this is part of a larger band of supply running between 11,285 and 11,325. The S&P faced off against its more traditional resistance foe of 1,294. Resistance came out the winner in its first bout. However, there is some decent relative strength in this index as measured by new reaction highs in the MACD and Stochastics, but others could view Friday's doji as a (bearish) shooting star given it is coming at a convergence of overbought levels (see both short [14,3] and intermediate [39,1] term stochatics). The highs and lows of Friday are the battle ground for bulls and bears.

Market internals continued to push their bullish divergences. The Nasdaq composite bullish percent index [$BPCOMPQ] rose as its MACD forced a new reaction high, as the declining ADX measured a weakening bearish trend. The bullish crossover in +DI/-DI switched the net technical picture to green, and ended the bearish decline from early May - an important signal, marking a confirmed 'buy' for this indicator and a market bottom at July lows. This followed a similar such signal for the Nasdaq stocks above the 50-day MA [$NAA50] in late July, and the Nasdaq Summation Index from Thursday [$NASI]. All the ducks are now lined up and ready to go (onwards and upwards!).

Newsletter update:

LNT fell back from its pennant breakout to knock out its stop after the company released earnings. The June 1st breakout closed for a 4% gain. ALJ reached into a confirmed test of $36.07 support, but dipped low enough intraday to hit its stop. The August 1st Breakout play closed for a 7% loss, while the July 17th Subscriber play closed for a 7% gain. NGPS also featured as a Subscriber pick for July 28th and a Breakout for August 1st. The former play closed for at breakeven, while the latter play closed for a 9% loss. TAP found support at the 200-day MA, but not before hitting its original stop price. The July 10th play closed for a 5% loss.