MARKET PULLS BACK FROM OVERBOUGHT CONDITION -- COKE AND XILINX FALL ON BIG VOLUME -- TRYING TO BALANCE SHORT AND LONG TERM VIEWS

MARKET IS OVERBOUGHT SHORT-TERM ... Earnings warnings in Coke and Xilinx contributed to some profit-taking in the Nasdaq and the big board today. Two other reasons for today's setback is a short-term overbought condition and the closeness to some overhead resistance levels in the major stock indexes. I showed the daily charts of the Nasdaq 100 Shares (QQQ) and the NYSE Composite Index yesterday and expressed optimism that both would see higher levels by yearend. On a short-term basis, however, both indexes are testing overhead resistance barriers and are overbought. The QQQ is meeting resistance at its 200-day average (Chart 1) while the NYSE has reached resistance at its June high just over 6600. The daily stochastic lines for both indexes are back in overbought territory over 80. Those two factors make the market ripe for some short-term profit-taking. The fact that today's selling came on higher volume also suggests some weakening in the short-term trend.

Chart 1

Chart 2

XILINX GAPS LOWER -- PULLS SOX DOWN ... Over on the Nasdaq, the main loser was Xilinx which gapped down on the heaviest trading in two months. That helped set the negative tone for the day. That drop also caused the Semiconductor (SOX) Index to drop more than 3% (Chart 4). The SOX backed off from initial resistance at its 50-day line. That contributed to profit-taking in the tech-dominated Nasdaq market.

Chart 3

Chart 4

COCA COLA PULLS DOW DOWN ... Coca Cola was the biggest loser in the Dow. The soft drink stock gapped down to a new 52-week low at the opening. And it did so on very heavy volume. That helped set a negative tone for the Dow which dipped beneath its 200-day moving average. Trading also picked up as prices fell. That's a short-term negative.

Chart 5

Chart 6

BALANCING SHORT AND LONG TERM VIEWS ... A number of our members have expressed some confusion concerning my short and long term views. Some believe that because short-term opinions may change, long-term views change as well. That's not the case. Many of our members have also requested more frequent market messages. Frequent messages are, however, of necessity short-term in nature. Others have requested a longer-term perspective. Longer term views, however, do not require frequent updates. What to do. Daily market commentary is meant to keep you informed of day to date changes in the marketplace. I do try, however, to limit my observations to only those that have some chart significance. That filters out most of the noise. Short-term trends don't necessarily have much of an impact on long-term trends, but they can help in fine-tuning trading strategies. Yesterday, for example, I expressed a more optimistic view of the market between now and yearend. That hasn't changed. Today's message, however, shows that the market may now be entering a short-term correction. That doesn't mean that my view has gone from bullish to bearish. It just means that a short-term pullback is probably due within the context of an improving longer-term trend. I'll try to make these distinctions clearer in the future. In addition, I'll make it a point to review my longer-term views more frequently and spell them out more clearly. Hopefully, that will alleviate some of the confusion.