What To Look For In A Neckline
A stock or index’s action around the “neckline”
of a head-and-shoulders pattern can be telling. All three of the major market
averages are in well-defined head-and-shoulders top formations and have been
consolidating right below their necklines.
The Dow is down 6 at 10,590, the Nasdaq is down 8.80 at
1983.86, and the S&P 500 is up 2.52 at 1215.10.
The Dow got off to a good start but has erased triple-digit
gains, despite the positive report out today that May’s Index of Leading
Economic Indicators rose at its fastest pace in more than 18 months. When a
stock or major market average either pops higher or rallies in the early part of
the session, only to give back gains and trade down to session lows is a
negative sign and typical of bear market behavior. The failure to move back
up above the indices’ overhead neckline is also a negative and suggestive
of “measured moves.”
Traditional measured-move analysis of head-and-shoulders
top patterns calculates a move below the neckline equal to the distance from the
head to the neckline. This implies a test of the April lows in the Nasdaq
and S&P 500.
Tellabs
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equipment makers JDS Uniphase
(
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(
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by issuing a warning of its own. The series of performance warnings by the best
names in this sector highlights the bursting bubble in telecom. Over a month ago
in this column, I pointed out Cisco’s
(
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Cisco then mentioned its 3000 “upstart telecom” customers had dropped
to 150. The washout has left few customers and dried up demand for
telecommunications equipment. This should have been the first salvo or the
sector. Tellabs is off 25%.
Teradyne
(
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its communications equipment testing business. TER is off 8%.
Semiconductors are also pressured following downgrades by a
Lehman Bros. analyst of Intel
(
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(
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Biotechs
(
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(
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chemicals
(
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(
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breakeven levels.
Networkers
(
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-4.09%, and gold and silver
(
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A strengthening dollar is a negative for gold, which is
usually transacted in dollars. Weaker-than-expected economic forecasts and a
perceived incapacity to lower interest rates in Europe and Japan are positives
for the dollar.