RAILS POWER TRANPORTS HIGHER -- NASDAQ RALLY STALLS AT 50-DAY AVERAGE -- SOX HITS NEW LOW -- LARGE CAP VALUE INDEX REACHES RESISTANCE
NASDAQ MARKET HAS NO BOUNCE... One of the missing ingredients in the recent market rebound has been the lack of participation by the technology-dominated Nasdaq market. While the Dow and the S&P 500 have climbed over their 200-day moving averages, the Nasdaq indexes haven't been able to get above their 50-day lines. Today's inability to do so probably contributed to the overall market pullback. Chart 1 shows the Nasdaq 100 Shares (QQQ) backing off from its (blue) 50-day average. Chart 2 shows the broader Nasdaq Composite Index doing the same. A close over the 50-day average is one of the minimum requirements in an emerging uptrend. Unless the Nasdaq is able to accomplish that, the other stock indexes may not be able to make much more headway. Chart 2 also shows that the Nasdaq Composite has yet to rise above its May low at 1878. Unfortunately, today's pullback also came on heavier volume.
Chart 1
Chart 2
SOX HITS NEW LOW -- INTERNET RALLY STALLS... One of the Nasdaq's major problems has been continued weakness in the semiconductors. Chart 3 shows the SOX Index hitting another 2004 low today. It's pretty tough for the Nasdaq to rally when the SOX is hitting new lows. Internet stocks have enjoyed more of a bounce than the chip stocks. Chart 4, however, shows the IIX Internet Index backing off from its 50-day average in today's trading. That didn't help the Nasdaq either.
Chart 3
Chart 4
BIG CAP VALUE STOCKS ARE AT RESISTANCE ... Another reason for today's market pullback may have something to do with the next chart. Large cap value stocks have been leading the rest of the market higher -- strongly influenced by financial stocks. The chart of the S&P 500 Value Index, however, shows that it's reached a potential resistance barrier at its June high. At the very least, a previous peak usually causes some short-term profit-taking. When a leading group stalls, the rest of the market usually does the same. Rate-sensitive stocks -- like financials and utilities -- also experienced some profit-taking today.
Chart 5
DOW TESTING DOWN TRENDLINE... The Dow Industrials are trading over their 200-day average, which is a good sign. But there's more work to do to break the downtrend that started during February. The next chart draws a down trendline along the February/June peaks (see first two arrowws). The third arrow shows that the Dow is now testing that seven-month down trendline. While the Nasdaq has been a laggard during the recent bounce, the Dow has been a leader. The presence of the down trendline shown in Chart 6 may have also accounted for some profit-taking today in the Dow. With the Dow having gained 500 points in just three weeks, it's also in a short-term overbought condition.
Chart 6
RAILS BOOST THE TRANSPORTS... Transportation stocks continue to advance powered by rails and truckers. The Dow Transports closed just shy of a new 52-week high today. Two of the main reasons were CSX and Union Pacific. CSX broke through its summer high on rising volume to reach the highest level in seven months. Union Pacific also had a strong day. Yellow Corp -- a trucking stock -- hit a new all-time high. Airlines remain the laggards in the transportation group.
Chart 7
Chart 8
DOW COMPOSITE INDEX TESTING SUMMER HIGH ... With the Dow transports within a few points of a new 2004 high, the Dow utilities (which recently hit a new high) pulling back, and the Dow Industrials within 124 points (or 1%) of its June high, it seems like a good time to look at the Dow Composite Index which includes all 65 Dow stocks. Chart 9 shows the Composite Index trading well above its moving average lines, but right up against its June peak. That's a logical spot to expect some profit-taking. Unfortunately, today's relatively modest price pullback took place on rising volume. That's a sign that traders are taking a little money off the table here. Although the overall chart picture looks more bullish than bearish, they know that September has a history of starting off strong and ending weaker. It looks like the recent runup is taking a breather. One of things we'll be watching will be whether or not the Dow Industrials are able to stay over their 200-day average.
Chart 9
Chart 10
