What’s the Nasdaq’s next big move? Watch these 2 sectors to find out

Stocks gapped up and began the day on
a positive note, but the enthusiasm quickly
faded, as the broad market drifted lower in the morning. The major indices spent
the rest of the day trading sideways in a narrow range. Both the S&P 500
(
SPX |
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and S&P 400 Midcap
(
MDY |
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(
DJX |
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(
COMP |
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2000 lost 0.l%. Individual sector performance was quite mixed, with about half
the industries finishing on either side of unchanged. Total volume in the NYSE
increased by 7% yesterday, while volume in the Nasdaq came in 1% higher than the
previous day’s level. Although turnover was higher, yesterday was not really a
day of either accumulation, nor distribution because the indices closed
virtually unchanged.

The Gold Index
(
GOX |
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yesterday, cruised another 1.5% higher.
(
GLD |
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higher as well. Other strong sectors were the Utilities
(
DJU |
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(
BTK |
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each of which gained 1.0%. On the downside, the bankruptcies of Delta and
Northwest airlines weighed down the Airline Index
(
XAL |
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Semiconductor Index
(
SOX |
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from September.

The $SOX index, which acted great during its bullish
consolidation in August, attempted to break out in the beginning of September,
but has since drifted back down to its breakout point. The losses of the past
two days put the $SOX back down in its prior trading range from last month.
However, the index is now right above its primary uptrend line that began with
the low of April 29, 2005. Support of this uptrend line is illustrated in blue
on the weekly chart of the $SOX below:

Also of note is that
(
SMH |
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right on support of its 20 and 50-day MA convergence:

Because the $SOX is so heavily weighted, the Nasdaq often
follows the $SOX. Therefore, keep a watchful eye on whether or not the $SOX
holds support of that trendline, as it is likely to determine the direction of
the Nasdaq as well. The Biotechs have also been showing relative strength
lately, so they need to hold as well. If the leading sectors start to drop, the
broad market surely will too. But if not, both
(
BBH |
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offer good opportunities for re-entry when/if the market turns back up.

Yesterday, we looked at daily charts of the major indices and
analyzed how each of the them closed Wednesday near’s pivotal levels. However,
since the broad market was virtually unchanged yesterday, those same key support
levels remain going into today. The S&P 500 probed below its 50-day MA on an
intraday basis, but again closed a few points above it. The Dow did the same
thing by running stops below the 200-day moving average, but bouncing to close
just above it. The Nasdaq, however, remained below its 50-day MA and also broke
below its 20-day MA yesterday. It is looking more and more like the Nasdaq will
soon test its August low. You may want to review our technical analysis in
yesterday’s
Wagner Daily and make note of the levels we visually highlighted. We are
bound to see a big move in either direction depending on whether or not the S&P
and Dow hold support of their 50 and 200-day moving averages respectively.

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