Monday, August 14, 2006 Weekend commentary

Newsletter, Members Click HereMarkets remain in holding a pattern as London terror fears failed to break what had been a market struggling at the 50-day MAs (tech markets and small caps), or holding weak breakouts (large caps). Volume dropped for a second day, further weakening Friday's action.

The NASDAQ and NASDAQ 100 held the bullish divergences in the +DI and MACD lines. For these indices, the 20-day MA was firm resistance in May and June, false breakouts were posted in late June before succeeding in early August, and have held to this day. Price action remains inside the bounds of channel support and resistance and could easily move to test one, or the other, without changing the direction of the intermediate term trend - so don't look for any significant change in the NASDAQ and NASDAQ 100 soon. Of the indicators, on-balance-volume is the one to watch - it has held firm to its distribution trend since May and if its 20-day MA is crossed to the upside it will mark a switch in favor of accumulation. The semiconductor index also maintains its breakout, even as the parabolic SAR switched negative.

The Dow did give up its break of May-July resistance, but has held support of the 20-day and 50-day converged MAs, not to mention the 200-day MA nearby below. The S&P also held the 20-day and 50-day moving averages as support (but closed a shade below the 200-day MA), while it has held its break of May-July resistance. The 'sell' triggers in the MACD are a concern in both of these indices, not helped by weakening stochastics. The distribution trends of on-balance-volume hasn't changed either.

The Russell 2000 only has the 671 support to look forward too. The index is running out of options as the bullish divergences in +DI and MACD were broken by Friday's close. Only the bullish divergence in the CCI remains.

Of the market internals, the $NASI marked a picture perfect reversal off Jun-July resistance as it crossed below the 5-day EMA. It sits on the verge of a bearish crossover in the +DI/-DI, but there is still room in the MACD before it generates a 'sell' signal of its own. Volatility is back at support after it failed to test June-July resistance. Such action should follow with a loss of support and a move down to the 200-day MA. Lower volatility will likely be accompanied with upside action in the market indices. For the tech averages - look to a test of channel resistance in the NASDAQ and NASDAQ 100, and a possible upside break of the 50-day MA in the semiconductor index. For large caps - watch for a test of May highs in the Dow and 1,294 in the S&P. For the Russell 2000 it could generate a move to black channel resistance c720, but this would be a major move.

Newsletter update:

CDE featured as a Breakout for August 10th and as a Subscriber pick for August 2nd. The former closed for a 5% loss and the latter a 2% gain. GRB featured as Breakouts for June 28th and July 20th. The former closed for a 6% gain and the latter an 8% loss. CFK featured as a Subscriber pick for August 10th. The small pennant broke to the downside, breaking through the 200-day and 50-day MAs. The play closed for a 3% loss. CNTY took its third hit in a row as it moved further away from its 20-day and 50-day MAs. The 200-day MA looks it next logical port of call. The June 6th Subscriber play closed for an 11% loss. USTR featured as a Subscriber pick for July 31st. A series of declines pushed the stock below its 50-day MA, to the stop price for a 7% loss.