Monday, October 23, 2006 Weekend commentary

Newsletter, Members Click HereA relatively boring week with markets retaining bullish rising channels (August-October). Where weakness crept in was a MACD 'sell' trigger in the NASDAQ as other technicals remained firm - on-balance-volume in particular supports a solid accumulation trend. The other change came in the Dow as it lost some ground (in terms of relative strength) to the NASDAQ 100. Volume climbed to register a distribution day/bearish churning on a "spinning top doji" (equal open/close with long tailed shadows - i.e. a large range between days high/lows and open/close). On-balance-volume in the Dow still favors accumulation, but its MACD trigger line is hugging tight bullish divergence support and is only a short tick away from generating a breakdown. The semiconductor index lost the 50-day MA as support, but held former bull flag resistance as support. The bearish divergence in the MACD trigger line deepened as intermediate term slow stochastics [39,1] dropped into bearish market territory. Further weakness looks likely until all slow stochastics reach oversold levels.

As for tech market internals [$NASI, $NAA50 and $BPCOMPQ]; the $NAA50 switched to a bearish cross of the 5-day EMA as its ultimate oscillator dropped below 70. There is a risk of a bearish divergence developing in the $NAA50, but support should appear when it reaches 1,250. There was no change in the $NASI and $BPCOMPQ. Finally, volatility dropped below 17, a support level on four previous tests. A move to 15 looks likely, but it could follow with a large drop in the market on a resulting surge in volatility.

I have kept my bearish stance in the Ticker Sense Blogger Sentiment Poll since September 23rd - given the NASDAQ has added some 110 points and the Dow some 470 points over this period it hadn't been the smartest of calls - but a downward spell can't be long in the offing and I remain bearish until we reach a level when tech market internals [$NASI, $NAA50 and $BPCOMPQ] are oversold.

Newsletter update:

DE gapped down after Caterpillar cut guidance. The stock featured as a Free Breakout for September 27th and October 10th and to Subscribers for August 15th and September 1st. The two Breakout plays closed for a 1% gain and a 5% loss and the Subscriber picks for a 22% gain and a 7% gain respectively.