NASDAQ COMMENTARY

The NASDAQ Composite did experience the trouble we had been concerned about at the 2100-2125 resistance zone this past week, as a brief attempt intraday on Thursday to get over 2100 failed badly by the end of that session, and stock followed through still further to the downside on Friday. We've drawn the dotted line at 2100 to show the importance of this resistance through many tests in 2005. The Nasdaq closed right on its lower 20-day Bollinger band (in blue) but the wider 80-day Bollinger Bands show that we are closer to the high end of the range at 2125 compared to the lower end of the range at 1904.

Looking forward this coming week, the 2050 level is the key mid-point support here in the short-term versus resistance at 2100 and next support at 2000.  We expect to see an attempted bounced in the early going this week to work off the pain of the past two sessions, but if 2050 breaks on a closing basis, it is likely to signal more problems ahead, as the Nasdaq index is started to underperform the other blue chips averages. This usually occurs in new downtrends.   

The other notable indicator was the heavier-than-average volume that came in Thursday and Friday for the Nasdaq and S&P 500. The charts below show surging volu,e above the 20-day average volume, and that suggests we are seeing distribution of stocks here which is not a good sign. Keep an eye on the next bounce, as if it's a weak volume move, that would suggest further heavy selling to come.

NASDAQ CHART

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S&P 500 COMMENTARY

The S&P 500 also has a key level it is very near at Friday's close - the 1190 level. We've drawn in the dotted line to show how many times the S&P 500 has oscillated around the 1190 mid-point in 2005. For now this acts as support, while a break of 1190 on a closing basis would open the door back to 1150. The resistance we pointed out last week at 1225 looks heavy, so a more likely retest area on the upside is near 1210.

Top S&P 500 component General Electric (GE) affirms its earnings outlook for the rest of the year on Thursday, yet the stock dropped on the day. It's that type of poor reaction to good news that often concerns us, as if stocks cannot rally on good news, they go down even faster if bad news hits.

Some would say that the market sell-off was caused by oil prices hitting the $60 per barrel level on Thursday, but stock prices had been acting firm up to $58 or even $59 per barrel earlier in the week. The bottom line is that portfolio managers have been playing defensively again, so the reaction to the actual news is what we care about more than the news itself. We're heading into earnings pre-announcement season over the next 1-2 weeks before we see the bulk of the second-quarter earnings reports in mid-July. For now we would expect a mild bounce off the 1190 support on the first test, followed by more selling pressure after the July earnings season concludes. 

S&P 500 CHART

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