STOCKS STAGE RECOVERY ON EXPANDING VOLUME -- OIL SERVICES AND SEMIS LEAD ADVANCE

NASDAQ SURGES OVER 2%... Today's Market Message was written by Arthur Hill. - Editor

It was a wild day on Wall Street as stocks opened weak and then staged an impressive advance with above average volume. Chart 1 shows the Nasdaq with a long white candlestick that closed back above the 50-day moving average on Thursday. I showed this chart after the big surge last Wednesday (28-Jan). The Nasdaq broke flag resistance last week and exceeded the 50-day line, but fell right back by the end of the week. With another advance over the last four days, the index is making another go at the upside. This time, however, volume surged to its highest level since late November. Looks like a lot of gutsy traders are placing bets ahead of tomorrow's employment report. Chart 2 shows the NY Composite moving higher on above average volume as well. The move in the NY Composite (1.59%) was not as strong as that in the Nasdaq (2%). As with the Nasdaq, the NY Composite found support near the November trendline. Today's bounce on good volume shows promise. Follow through above the 50-day line would be even more impressive.

Chart 1

Chart 2

OIH AND SMH SHOW UPSIDE LEADERSHIP... Stoked by a small gain in West Texas Intermediate Crude ($WTIC) on Thursday, the Oil Service HOLDRS (OIH) surged 4%. Chart 3 shows OIH with support in the upper 60s and resistance around 90. Some sort of base is taking shape and a resistance break would point to further strength. As with most industry group ETFs, OIH remains in a long-term downtrend though. An advance from current levels would still be deemed a corrective move within a larger downtrend. The basing pattern looks like an ascending triangle (blue trendlines). These are normally bullish continuation patterns, but can sometimes form as small reversal patterns. A break above 90 would target further strength towards 120. The height of the pattern (90 -- 60 = 30) is added to the breakout for a target.

Chart 3

Chart 4

Chart 4 shows the Semiconductor HOLDRS (SMH) with characteristics similar to OIH. A higher low formed in mid January and the ETF met resistance around 19 in December-January. The pattern also looks like an ascending triangle. A break above resistance would be bullish. The falling 200-day marks the next resistance level around 24.

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