Rough Rider
The
Nasdaq Composite staged a mid-day recovery after a nasty gap down on
this morning’s open
on the heels of PMC-Sierra’s announcement late Thursday that an
economic slowdown has caused an inventory glut among its customers. The
company cut first-quarter
EPS estimates to 13-15 cents, while analysts surveyed
by First Call/Thomson Financial had expected 37 cents on average. The
weakness immediately impacted Cisco Systems, which happens to be a large
buyer of PMC chips.
Although Cisco managed to pare its loses and close near its
highs of the session, it still formed a down-gapping window today which
is bearish for the stock,
short term. As a hedge fund trader friend of mine from
Dallas, Texas says, “Boy, don’t fight Cisco!”
Although the Nadaq Composite managed
to rally and close the session nearly 100
points off its intraday low, it has only retraced less than 50% of its
loss from the intraday
high it achieved on Wednesday (Jan. 24). Monday’s session
will be critical in determining whether this is a shortable pullback
from lows or a more potent
move higher to retest or exceed the highs of January
24. The chart below is a 15-minute Nasdaq Composite chart indicating
key Fibonacci retracement
levels from Wednesday’s high to today’s low.
Interestingly, moving a little further
out to a daily time frame, we can clearly
identify the actual trendline that is serving as resistance in the
Nasdaq Composite.
As seen on the chart above, the actual
trendline we should be watching goes back
to the March 2000 high and has been holding down the Nasdaq Composite
ever since. Forget about
the trendline you are being shown on television from
the September 1 high, it is irrelevant here. As shown, support area
(a) corresponds to the
lows of the big green candlestick from 12/05. If this area
is violated, the next area of support should be in the window of point
(b). If the lows of the
point (b) area are violated…well…let’s cross that
bridge if we come to it.
The market still feels like it wants
to retrace a little more of its recent run-up,
and I would be cautious initiating new longs until the market can pullback
and consolidate for more than three hours. I am still trying to determine
on what grounds the market can rally further after the FOMC decision
on interest rates, in which there is most certainly a 50-basis-point
cut factored into the
equity markets. As we all know, the market is a discounting
mechanism that factors in events well down the line. At present, not
only is the market factoring in the 50-basis-point cut this week, but
also a major economic and
earnings recovery during the second half of this year.
Keep it close to the vest and get
ready for some major action next week.
Long Watch: Drugs may continue to edge
up and retrace the nearly 20% drop they
experienced after the beginning of 2001.
Short Watch: Look for failures at key
retracement levels for the techs and “chosen
ones.” Stocks like BRCD, MUSE, BEAS, CMVT, etc. certainly look like they
have rallied up to key resistance zones on weekly charts.
Have a great weekend.
Goran
Random Musings: Is it me, or do the
CEOs being interviewed on CNBC sound and
look like used car salesmen? I loved the Corning (GLW) CEO stating
emphatically yesterday
morning that their warning might not have actually been
a warning and that their warning may be negated if demand for their
products stage a strong
recovery in the second half of the year…Huh?? What
is that your saying??? I felt like he was getting ready to hit us up
for an extended warranty
and aftermarket rust-proofing.