View Full Version : Thoughts on today's market action - 12/6

12-06-2005, 11:48 PM
Harry's Closing Boxer Brief...

Unsatisfying Up-Day By Harry Boxer

I would call today an unsatisfying up-day. The day started out with a big move up on a gap-up at the opening. They worked their way higher to new 2005 highs by mid-day, and then consolidated for a couple hours. When those bullish-looking consolidations failed to materialize in an extension of the rally , they began to roll over in mid-afternoon and the indices got pounded and gave back the majority of their earlier gains.

The Dow was up less than 22 today, but at one point was up more than 100. The S&P 500 ended up 1.61, but that was about 9 points off the high. The Nasdaq 100 was up 6.58, but about 15 points off its earlier high. The SOX was up 5 points today, 8 points off its earlier high.

So you can see the indices gave back a large portion of what they had gained in the morning.

The technicals were positive despite the sell-off, but much more narrow than they were earlier in the day. Advance-declines were 18 to 15 positive on New York, 16 to 14 on Nasdaq. Up/down volume on New York was 3 to 2 positive on total volume of 1.57 billion. Nasdaq traded a little more than 1 3/4 billion, with about a 10 to 7 positive ratio.

TheTechTrader.com board was mixed, but there were a couple point-plus gainers. REDF, one of our current model portfolio positions, was up 1.63 today on solid volume.

ATEA, one of this week’s Charts of the Week, was up 1.19 to a multi year high on strong volume. BOOM managed to gain 53 cents, but was up as much as 4 points earlier in the day, and gave back the vast majority of its early gains on 6 ½ million.

JMDT was up 43 cents. That was another one of our Charts of the Week this week. LEXR, a current model portfolio position, was up 28 cents. And TZOO gained 60 cents.

On the downside, PWEI gave back 95 cents, despite being up more than a point earlier in the day. In the alternative energy sector, ESLR was down 64 cents and ENER 57 cents.
BVF gave back 39 cents.

Stepping back and reviewing the hourly chart patterns, despite new 2005 highs on the indices, the afternoon sell-off put a big damper what could have been an outstanding day for the indices.

We’ll see if the late afternoon’s steep sell-off results in any downside follow-through tomorrow. Key levels to watch are the 1698 area and then the 1690 zone on the NDX. Below 1690, we do get a breakdown on the NDX.

S&P support is at about the 1262 zone and beneath that important support at 1258. Any breakdown below 1258 on the S&P and 1690 on the Nasdaq 100 would be very negative for the indices.

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Today's Worden Note...

The SP-500 and the Nasdaq Averages (the Composite and the 100) looked as if an upward breakout from the congestion area they are all locked in was in the bag. All they had to do was hold on to the gains garnered in the first several hours. And then, about 3 o'clock, the market did a quick cut-and-run with total abandon. It was like a WWI army vaulting out of its trenches and starting to charge, then suddenly realizing there is "no exit strategy" (a term all of us have become familiar with lately). What would happen when they reached the other side of no man's land? So they got cold feet, turned tail and tumbled back into their own trenches.

The believability of an assault on the all-time highs of the SP-500 at 1553 and the Nasdaq Composite at 5133 may actually be in doubt. It may be psychologically easier for traders to take their money and run, rather than finding themselves floating at an altitude of rarified air.

The selling off in today's last hour was at a considerably higher volume level than the climb during the preceding 5½ hours. It wasn't a simple dry-up of buyers, which accounts for most declines. Somebody wanted out!

How should we interpret this? I don't know. Off hand, I can't remember a situation just like it. One thing I have learned is to take heed of any market move that comes out of nowhere with no news to explain it. Just as I am skeptical of moves in obvious response to specific news. This move blew in like a strong, invisible wind.

What about breadth? It was positive across the board. But for that matter, so were the net changes in the various market averages. They were going down, but they never gave it all back.

As for breadth readings, I have mentioned before that they change slowly. We can find a clue in HalfPoint+ Movers, which stayed positive, but which shrank to a small total (324-198). If the market hadn't folded, there may very well have been close to 1000 advances. I think the shrinkage is a sign the big money backed off, and I would interpret the result bearishly. But in contrast, the Leadership Index maintained a more-than-respectable reading of 610-436.

I think we're back to where we were yesterday, when I said, "I think the odds of a retreat to the area of the September highs have increased to about 50%. That would be a normal correction and not a basis for serious worry."

From there, I think the market could muster a credible charge. Would the big money chicken out again? Maybe. -DW

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