Sunday, September 24, 2006 Weekend commentary

Newsletter, Members Click HereLower volume will have disguised the bearish tone for the day. The tech averages [NASDAQ and NASDAQ 100] struggled at their 200-day MAs. The large caps [Dow and S&P] gave up ground while challenging 52-week high resistance. The Russell 2000 closed along combined channel support and the 200-day MA while the semiconductor index sought respite at the 20-day MA. There was a shift in relative strength as Large caps jumped above Small caps to align markets in a more bearish stance {Tech Indices > Large caps > Small caps}.

The Dow and S&P are each treading fine lines as their MACD trigger lines crossed to trigger 'sell' signals while price held support of 4-month bearish wedges. Price support was marked by similar support in the MACD trigger line. Interesting times for these indices - technicals suggest the bearish wedges will break (Monday?). However, when support is tested long positions are favored - so confirmation of a break will be needed (1% break) before one can call the 4-month rally over and a new downward/sideways pattern under way. The semiconductor index also switched to a 'sell' in its MACD trigger line, influenced by the bearish divergence in the CCI and a drop in relative strength to the NASDAQ 100. With the 50-day MA at 429, I would not be surprised to see price follow the technical lead down to this potential support area.

Tech market Internals [$NASI, $NAA50 and $BPCOMPQ] shifted up a gear on the bearish front. The $NAA50 gave up 1,200 after struggling for a few days at 1,250-1,300 range resistance. The $NAA50 is influenced by the bearish divergence in the Ultimate Oscillator and the MACD trigger line, not to mention a resistance break in the bearish -DI line (following from the confirmed break of +DI support the previous week - a double whammy). There looks to be a more significant top in place than was previously anticipated. Both the $NASI and $BPCOMPQ weakened, but not to the extent of crossing below their respective 5-day EMAs. Technicals of each weakened slightly, but it is important to add that there are no bearish divergences at play in their supporting indicators (MACD, Ultimate Oscillator, +DI/-DI, or slow stochastics).

I have flip-flopped over the last 3 weeks for followers of the Ticker Sense Blogger Sentiment Poll. The sentiment poll asks for a 30-day outlook; I have gone for bearish, to bullish (last week), back to bearish (for this week). I don't like the action in the $NAA50 and with large caps trading around major resistance I think some sideways (to slightly downward) action looks favored. Small caps look beat and I don't expect the mini-upward channel, or 200-day MA of the Russell 2000 to hold out for long. If large caps were to break through 52-week highs on strong volume then it would greatly reduce the chance of seeing lower prices 30-days on from Friday (which would make my bearish call a bad one).

Newsletter update:

The second day of declines knocked out a few more potential positions. ALFA was a Breakout play for September 18th. The play closed for a 3% loss. IIJI gapped down below its 20-day MA, but held its 50-day MA. The September 5th Breakout play closed for a 9% loss. NIHD clipped its raised stop at the very intraday low. The September 19th Breakout play closed for a 4% loss and the August 29th Subscriber pick for a 7% gain. IHG may (or may not have - can't tell if there is a tick error) have hit its September 9th stop price for a 3% loss. OATS was another stock to get whipped out on the intraday low. The September 20th Subscriber pick close for a 5% loss. MGI suffered 5 days of heavier selling to run into it August 28th Subscriber stop price for a 4% loss. KKD failed to generate the bounce off its 200-day MA, drifting to its September 20th Subscriber stop price for a 3% loss. LMNX reversed hard off its breakout. The August 29th Subscriber pick closed for a 1% loss.