MARKET BOUNCES WHILE BONDS FADE; DOLLAR BOUNCE COINCIDES WITH GOLD PULLBACK
NASDAQ 100 LEADS MARKET BOUNCE... The Nasdaq 100 -- inspired by a bounce in the big tech stocks -- gained over 3% today and was the day's strongest stock index. It's usually a good sign for the market when the big techs are showing better relative strength. And, it may be coming just in time. The horizontal lines on the price represent Fibonacci retracements. The third line represents a 62% retracement which is normally an important test of support. The fact that the NDX is finding some support there is encouraging. The daily MACD lines are still negative, but are very close to turning positive. The stochastic lines moved back above 20 for the first time in a couple of weeks. We take as another sign of at least a short-term market bounce. And, if the Nasdaq rallies, the rest of the market will probably follow.
Chart 1
DELL LEADS NASDAQ BOUNCE... Dell Computer was the standout performer for the day -- and led the tech rally. It was the Nasdaq's most actively traded stock. It gapped up 2.52 points today on massive volume. It still has to clear its moving average lines to confirm a bottom. However, its MACD lines turned positive. Its relative strength line also turned up -- reflecting superior performance. Please see our earlier update for pictures of some other technology leaders.
Chart 2
GENERAL ELECTRIC BOUNCES OFF OCTOBER LOW... We've all been waiting for the NYSE stock indexes to reach their October lows -- from which a bounce is expected. Here's a big NYSE bellwether that's already there. General Electric was the day's most active stock on the big board -- and it gained ground today. The chart shows that it is bouncing off its October low just below 22. Since this is usually viewed as a big board bellwether, there may some significance to today's successful test of that chart lowpoint. The daily oscillators are also encouraging. The 9-day RSI shows a "double bottom" beneath the oversold level of 30. And, the stochastic lines have moved back over 20. [The stochastic lines can reach oversold territory under 20 and stay there for awhile -- as they did with GE. It's when they turn back up over 20 that a short-term bottom is signalled. That's what they did today. Given its size in the NYSE stock averages, that may support a rally on the big board as well.
Chart 3
BONDS ARE OVERBOUGHT... The daily price chart of the 30-year Treasury bond shows that bond prices have reached the top of their trading range near 114 -- before closing down sharply today. We take that as a bad sign for bonds -- short term -- but a good sign for stocks. That's because bond and stock prices have been travelling in opposite directions. Bonds have reached resistance at the top of their trading range -- which stocks are probing for support near the bottom of their trading range. We think a pull back in bonds from here would be further evidence that the stock market is due for a bounce.
Chart 4
DOLLAR UP, GOLD DOWN... Two other intermarket markets are working in favor of a stock market bounce -- the dollar is bouncing from an oversold condition -- while gold continues to correct downward. The Dollar Index ended the week on an upnote. Its MACD lines have turned positive. The Dollar Index could rebound up to its 50-day average. Meanwhile, April gold fell another $5.50 today to end the week at $352. [Gold's 50-day average is near $350). Gold stocks lost another 2% today. The XAU Index is sitting right on its 200-day moving average. Weakness in gold and gold stocks usually means a bouncing dollar; that's also good for stocks. We don't think today's market moves represent major trend shifts. However, we do think that short-term trends may be changing. That's probably positive for the stock market.
Chart 5
Chart 6
