Sunday, December 03, 2006 Weekend commentary

Newsletter, Members Click Here Bears made a follow on push to Monday's losses, but bulls were able to make enough of a stand to keep certain support levels intact. The NASDAQ broke below channel support but was able to hold former October resistance, now support, of 2,381. This support was undermined a little by the reversal of relative strength compared to large caps [S&P]; markets don't perform as well when large caps are leading. The Dow was less lucky as was unable to regain former channel suport but was able to gain against the NASDAQ 100 with respect to relative strength. However, the NASDAQ 100 was able to hold its channel support (unlike the NASDAQ) and even though it gave up position relative to small caps [Russell 2000] it still holds in favor of the bulls. The Russell 2000 was also able to hold channel support as it continues to perform above expectations (my expectations were for a sharp out performance from large caps relative to small caps). It also held its ground against the NASDAQ, keeping it as the leading index: {Small caps > Large caps > Tech Indices: Neutral and weakening}. The semiconductor index held support of the 50-day and 200-day (and perhaps the 20-day) MAs, but there was an apparent large tick error for the day.

The tick error in the semiconductor index weakened the technicals significantly (but again, this looks to be a reaction to the tick error). Other indices maintained their weakening technical picture as bearish divergences in the MACDs of the NASDAQ, Dow, NASDAQ 100 (to a lesser degree), and S&P held. On-balance-volume of these indices hold to strong accumulation, but bullish trend strength (+DI) is wavering, so it won't be long before bears are calling the shots (if not doing so already).

The key bearish action remains in the tech market internals [$NASI, $NAA50 and $BPCOMPQ] as long standing bearish divergences in their MACDs hold (we are now heading into their third month of existence). The bullish divergences from May-July sparked the latter year rally, there is good reason to argue for the reverse happening now. Contributing to this weakness is deeply oversold volatility; a sharp spike in this indicator usually corresponds to a fearful period in the markets and sharp downside. Adding to the weakness were bearish crosses of the 5-day EMAs in the $NAA50 and $BPCOMPQ.

There should be no surprise to see me bearish for the Ticker Sense Blogger Sentiment Poll.