The Nasdaq Composite eroded further Monday, but is reaching a pivotal level of chart support that coincides with the 50-day EMA. Despite the negative tone, a case could be made that the technical conditions could be improving for the bulls.
Clive Corcoran's instincts say that global liquidity conditions favor a retest of the historic S&P 500 high, which lies about 100 points above Friday’s close, but there are some early indications that a distributive top could be developing.
A large part of the malaise with the Nasdaq and tech stocks can be laid firmly at the door of the semiconductor sector. SMH has moved from a position where it looked about to challenge the upper bound of its range last week to the bottom of the range in just five sessions.
Earnings season brings with it the potential for large surprises, so it is important to be even more diligent than usual in analyzing the technical conditions of individual securities as the capacity for large gaps is currently high.
The retail sector continues to show relative strength as it pushes to new highs. The ETF for the sector, RTH, reveals that the recent price strength however is being registered on subdued volume.
The yield on the 10-year note touched an important low on December 1 at 4.4% and has moved up decisively since, but is now approaching the 4.85% level which could provide near-term resistance.
With positive developments in several big name tech stocks and with assistance from the semiconductor stocks, the divergences that were causing some concern during December as the Nasdaq stocks continued to underperform seem to be fading.
The ETF for the homebuilders, XHB, is at a fairly critical level. The close yesterday was below the 50-day EMA and this puts into question the upward breakout that occurred in late November which brought the sector back above the 200-day EMA.
The Nasdaq Composite index has been confined below the high of 2465 registered just prior to Thanksgiving. If the index fails to penetrate this barrier in the near future, this may unsettle the bulls and embolden the bears for another attempt to bring the index lower.
The exchange traded semiconductor sector fund SMH has been range bound since September and while the chart looks constructive, Clive Corcoran wants to see a definite assault on the upper boundary of the range before celebrating a new upward leg for the techs.
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