NASDAQ BOUNCES OFF MAY LOW -- S& P 500 CLOSES BACK OVER 200 DAY LINE IN POTENTIAL RIGHT SHOULDER -- CORNING JUMPS ON BIG VOLUME -- FALLING OIL BOOSTS TRANSPORTS

NASDAQ TESTING ITS MAY LOW... Today's Nasdaq-led market bounce shouldn't come as to much of a surprise. Chart 1 shows why. The Nasdaq Composite Index has reached its May low near 1865 where it's logical to expect some short-covering and some bottom-fishing. The daily oscillators also show the Nasdaq to be in a short-term oversold condition. The 14 day RSI is bouncing off the traditional oversold level at 30. The daily stochastic lines are also in oversold territory under 20. The bigger question is whether or not today's bounce has any staying power. Unfortunately, it's too soon to tell. Volume was on the light side which isn't encouraging. Having said that, there's room for more upside activity. No significant overhead resistance is seen until the 1940-1960 region. It remains to be seen if new buyers come into the market in more convincing fashion which would be reflected in higher prices and higher volume.

Chart 1

S&P 500 CLOSES BACK OVER 200-DAY AVERAGE ... Chart 2 shows the S&P 500 closing back over its 200-day average. That calls into question the downside violation of that long-term support line last Friday. The daily stochastic lines also show the S&P in oversold territory. The daily MACD lines are still negative, but are converging. To turn the short-term trend back up again, two things have to happen. The S&P needs to close back over its 50-day line. And the daily MACD lines have to turn positive. Chart readers will notice that the S&P 500 chart has the look of a potential inverse head and shoulders bottom (see circles) with the latest downturn a potential "right shoulder". For that bullish pattern to be confirmed, however, the S&P would have break its neckline drawn over the April/June highs. That's a long ways off, but I thought it worth mentioning the possibility.

Chart 2

CORNING LEADS S&P HIGHER ... Corning was the big star in the S&P 500. The stock jumped 13% and climbed back over both moving average lines. The heaviest trading in three months made it the most active stock on the big board. That's a strong combination. Chart 4 puts its trading pattern during the first half of 2004 in better perspective. It shows GLW in a sideways trading range since January. Its relative strength line has been rising since May which also shows leadership potential.

Chart 3

Chart 4

CRUDE OIL DROPS $1.00 AND HELPS TRANSPORTS... The market may have gotten support from a $1.00 drop in the price of crude oil. That caused profit-taking in energy shares and may have lent support to the Dow Transports which continue to show good relative strength (Chart 5). Chart 6 shows the Dow Utility Average closing at a new 52-week high. It remains to be seen if leadership by those two Dow averages is a harbinger of higher prices in the Dow Industrials.

Chart 5

Chart 6