More Trouble Ahead For The NASDAQ Composite Index?

Posted in NASDAQ Composite Index (IXIC) on April 21st, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets
Although the NASDAQ Composite Index (IXIC) has already dropped by 8.50% from its 4,371 high set on March 7th, a break below key upward sloping trend line support now at 3,920 would likely trigger another round of technical selling. In addition, overbought conditions on longer term (monthly) charts underscore the bearish intermediate-term case for the IXIC.

If a break below support at 3,920 did unfold, the NASDAQ composite Index could potentially test key “cross” trend support currently sitting at 3,580. Such a move would represent another 10% decline on the IXIC from current levels and an overall tumble of more the 18% from its March 7th high. (Note: this same “cross” trend held as support between 2003 and 2008 before breaking solidly below it in 2008).

This outlook, of course, is purely technical in its assessment of price activity on the IXIC. Nevertheless, the recent rotation out of momentum stocks and into lower beta sectors of the equity market does not yet appear to be over. Fundamentally, worries over deflation or at least the absence of inflationary pressures in Europe remain an issue. Political uncertainty regarding Ukraine continues to be troubling as well.

Still, a possible 18% correction might actually be welcomed by investors who have maintained a higher than normal amount of cash. Moreover, such a pullback in equity prices could sent interest rates lower which, in turn, might spur a lift in mortgage activity, home buying and new construction starts. In the end, such an outcome would likely boost economic activity in general and a healthy rise in GDP in the not-too-distant future.


Is The S&P 500 Index Ready To Begin A Correction?

Posted in The S&P 500 Index (SPX) on April 7th, 2014 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With earnings season about to begin, the technical set-up for the S&P 500 Index (SPX) suggests that correction is entirely likely. The problem is that many investors appear to be expecting that event to occur, which might be just the reason that lessens such an outcome. Nevertheless, weekly stochastic oscillators are in an overbought condition with weekly MACD studies (Moving Average Convergence/Divergence) diverging bearishly. Moreover, key channel-top resistance sits just above at the 1,905 level.

Another interesting point to remember is that the guidance of many firms has been lowered for Q1 due largely to weather related issues that in truth have acted as a drag on many segments of economic activity. Further, a rolling rotation out of momentum stocks and into defensive sectors has trimmed some of the speculation that was very visible to most investors.

Another wrinkle to consider was that comments made by Fed Chair Janet Yellen in March appeared to reflect a much more dovish stance than was expressed by her earlier in February. As a result, the expectation for any meaningful rise in interest rates may have been pushed to the much renowned back-burner.

What are investors to do? Corrections are necessary in order to dissipate some of the froth that accompanies excessive bullishness. That being said, it might well turn out that the rolling rotational out of high beta stocks and into defensive positions might well be acting as a proxy for a full fledged pullback.

Of course Q1 earnings, as well as a set of fresh guidance parameters will likely be greeted with great interest by investors just as the month of May approaches. What is that old saying? Sell in May and go away? Perhaps, if key trend line support currently sitting at the 1,800 level gives way to increased selling activity.