Wednesday, November 01, 2006

Tech Talk

We apologize in advance for what will surely be some technical talk this evening, especially given the rich technical picture we see the market in tonight.

When the stock market moves radically in a vertical direction either up or down, there usually is a move that brings prices back into that price range.  For some reason the stock market needs to “fill” those spaces in with real trading.  Looking at the NASDAQ Comp in just the last ten days, there are three fairly strong vertical moves, one up back on Monday October 23rd, one down on Friday last week, and another down one on Wednesday (today).  The first two were quickly filled in within two trading days and the last one is just tonight sitting there.  Actually, looking at the chart there is almost the same price for the low point of the first one (on Monday, October 23rd) and Wednesday’s low point.  This is nice symmetry but we do have the issue of the vertical move, will it get “filled” or not.

Wednesday’s down move does bend the charts down a little but there wasn’t a break in the firm uptrend of the past three months.  The important issue is whether the market will now break through that up channel to show some weakness.  Wednesday’s volume was somewhat higher than Tuesday’s but not enough to get us bears excited.  

The market is currently in a position to fall dramatically to correct, at least, the three month rally.  If a break occurs in the next few days and it happens on heavy volume, we will conclude that the time for a major correction is at hand.  We have indicated that the Friday jobs’ report could give us the news impetus for a nice reversal of fortunes but the market didn’t seem to want to wait for that on Wednesday.  

The Dow made a slight move down to get a real good look at 12,000 from the topside.  We have long said that the Dow likes to hang around round numbers for a while.  They act almost like magnets or at least sticky points for prices.  Normally, price levels in indexes like the Dow don’t really mean very much but we tend to see the big round numbers as being a bit more important than others.  Certainly they capture the attention of the public, if nothing else.

We are extremely keen on the pattern the market is in tonight.  As we mentioned at the top of this post, the market normally fills in the trading of vertical moves before going any where too far away.  That is true unless the move is going to be a strong one like the one that could be building for the next few days.  We just can not say for certain this will happen because there is some likelihood that the market will go back up and fill in Wednesday’s vertical down move before it proceeds any further south.  

The news was not good out of the manufacturing area as the ISM’s index fell just slightly versus an expected rise.  The bond market enjoyed this perceived weakness and pushed to a four week high.  The ISM’s index was above 50, barely at 51.2, which indicates growth.  Construction spending was down 0.3% while pending home sales fell 1.1%.  The MBA refinancing index was lower by 4.5% but Ford and GM showed increases in sales in October.  All in all, the economic picture didn’t look as bright as the market would have liked.

Dow Industrials:  12,031.02  -49.71
VIX: 11.51
QQQQ:  42.00
RYVNX:   18.64
RYAIX:  22.47
RYCWX:  37.73
TLT:  89.96
BEGBX:  13.85

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