The Nasdaq: testing support
Gary Kaltbaum is an investment advisor
with over 18 years experience, and a Fox News Channel Business Contributor. Gary
is the author of
The Investors Edge. Mr. Kaltbaum is
also the host of the nationally syndicated radio show “Investors Edge” on over
50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s
Trendwatch”…a weekly and monthly technical analysis research report for the
institutional investor. If you would like a free trial to Gary’s Daily Market
Alerts
click here. 888-484-8220 ext. 1.Â
It is first important to go over
what we said in out last report:
“We have been telling you that until the “markets” break
support, they continue to get the benefit of the doubt. We have also
told you the NASDAQ-types have been lagging badly. For the NASDAQ (COMP)
and NASDAQ 100 (NDX),
the benefit of the doubt is history. The NASDAQ easily sliced through its
50-day
moving average as well as
near-term support at 2300. Next support will be the more important 2232-2240
area.
The NASDAQ 100, which is much weaker than the
NASDAQ, easily sliced through the 50-day
moving average and broke support
at 1680. Not only was the 50 day broken, but the 150-day average as well. Next
support…and vital is support is 1633.
The SOX is now coming apart at the seams. It
has been laboring and lagging since its top in January. It is now on the verge
of breaking longer-term support at 489.
We suspect
the NASDAQ/NDX/SOX/INTERNET/BIOTECH are only going to get worse. INTERNET and
BIOTECH have been in their own private bear market. The amazing thing is that
these areas led the market out of the brutal bear in 2003. Now they are leading
it down. We would completely, seriously avoid these areas as all bounces will be
sellable as supply has taken over.
We suspect there is risk here. The strongest groups as well as many of the
markets around the world are stretched and extended way beyond the norm. They
are going to correct and believe this will be the opportune time.
As far as the other major indices, we believe they are going to correct also.
Just keep in mind, if the NASDAQ drops 10%, the DOW will drop 5%…and so on.
This is normal as the NASDAQ usually leads down and up. We also want to make
note that the DOW has been leading recently which is never a thrilling sign. As
far as COMMODITIES go, they are the highest of risk here. Some names actually
have been Internetish…as their charts look like the Eiffel Tower. We suspect
and believe that serious corrections are due also.
We will have a much bigger report on Monday…but we urge you to now start
playing defensive as many areas are speaking very loudly.”
Just over a week ago, we talked about the
positives: the DOW, S&P, SMALL-CAPS and MID-CAPS all moving to new highs…BUT
the NASDAQ and NDX were lagging badly. At the same time and for weeks, we had
been talking about our worries on the dollar, soaring commodity prices, a Fed
run by the Keystone Cops, internal market deterioration and a bond marketÂ
that continued to implode. But…we mentioned that until support is broke on
the major indices, regardless of the deteriorating internals and the other
worries, Â the market would get the benefit of the doubt. On Thursday, the
NASDAQ and NDX lost that benefit and on Friday, many areas followed suit.
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Before we get into the forest, let’s talk about
the trees. Shorter, term, anything can happen but gather we can get a bounce
soon. First off, the put/call figures spiked up big time on Friday indicating
a large amount of short term fear…and secondly,  just the fact things have
come straight down so quickly and just the fact things are already stretched to
the downside…especially on the NASDAQ and NDX, lends itself to a bounce.
This will probably occur with a decent down open followed by an intraday
reversal to put in a short-term low…but that’s just a guess. But that’s as
far as we can go because  that’s the trees. The forest: THE COMPLEXION OF THIS
MARKET AS WELL AS MARKETS AROUND THE WORLD HAVE CHANGED…AND WE DO NOT WANT
YOU TO FORGET IT.Â
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Let’s start with what we have told you were the
weakest areas and that’s the NASDAQ and NASDAQ 100. The NASDAQ 100 has sliced
through its longer term 200 day moving average and is now sitting on what we
believe is long term support at 1634. The NASDAQ is close to testing important
support as well as its 200 day average at around 2232. We would describe what
we have seen over the past few days as somewhat of a mini-meltdown in
TECH/SEMIS. The SOX is now sitting on its longer term average at 491.
We believe there is a better than average chance
that we have seen the highs of this cycle in these areas. We do not usually
talk about fundamentals in this report but we believe an amateur can see what
is happening in TECH/SEMIS right now. We are seeing a massive inventory
build…simple as that. This always happens at the end of a cycle. Amazingly,
just about everyone remains bullish on this group. We believe the market is
talking.
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To show you what a divergence we are seeing, just
look at the DOW chart which is showing nothing more than a normal pullback off
of an extended condition. Two things: we have told you for years:Â Â that it is
never a good sign when the DOW is leading and always remember, in bear phases,
the DOW will always hold up better. We can also say the same thing for the
TRANSPORTS at this juncture. Until the past couple of days, it has been a move
up with hardly any corrections.
The S&P, which has been weaker than the DOW, has
sliced through the 50 day average. For the S&P to turn bearish on more than
just the short-term, it needs to close below 1280. A break below starts the
stairsteps to the downside with next support at 1268, 1253 and the big number
at 1245.
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Small and mid-cap indices have also felt the
brunt, all closing below the short-term 50 day average. We want you to keep in
mind, these areas have been outperforming for years. You should know what that
means by now…higher risk.
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WORLD MARKETS are also now coming in. Let us be
clear. Most world markets are extended and many world markets, especially
emerging markets, are not as liquid as ours. If this is the start of a real
bearish phase, we believe many areas will be good for 25%-plus corrections. We
can use the word “corrections” with places like India and others when talking
25%Â because of how far they have come.Â
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The BOND MARKET continues to act like Michael
Jackson’s music career. Nothing positive to talk about. Every bounce has beenÂ
short-lived and anemic.
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COMMODITIES followed our script to the tee. The
“EIFFELÂ TOWER” charts could not last. We saw several COMMODITY names drop
5-10% just on Friday. We suspect there is more to come.Â
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OILS are coming under pressure also. In spite of
OIL PRICES staying above $70, we are starting to see a decent amount of names
break down.
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GOLD STOCKS are in correction mode also off of
extended conditions. We expect the parabolic move in GOLD to come to an end
also.
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We alerted you to the top in the BROKERS a couple
of week’s back. The reason for mentioning the BROKERS was that they have been
a decent market proxy throughout the years. They continue to roll over with LM
continuing to be the weakest of the back. INVESTMENT MANAGERS, for the most
part, are also joining the topping out party.Â
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If that’s not enough negatives, we have a few more tidbits to chew on:
Mutual fund cash is down to 4.2%…a number not
seen since 2000.
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There were many more new lows than new highs on
Friday…just a couple of days off of the DOW’s highs. That just tells you
what we have been telling you for weeks. Despite the DOW hitting new highs,
there has been lots of internal deterioration underneath the surface.Â
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We are not finding many emerging groups right now
that will help the market. We do like how the MEDIA stocks are turning up. We
like how the GAMING stocks remain in good shape. We like how some INSURANCE
names have good charts. We like how the TRANSPORTS are still in fine shape.
But…we cannot go much further than that.
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All in all, until we say otherwise, we believe it
is still time to be defensive. We also know that nothing has changed and most
in this wacky business have not learned any lessons. If this is the start of a
bear phase, the bulls will stay bulls regardless what happens. We believe it
is your job to listen to the market because the market knows all. It does not
care about you are us. Expect some serious volatility ahead.
Gary Kaltbaum
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