Charts of the Week, Monday September 11th, 2006
Charts of the Week are stocks that appear to be attractive candidates for short- to intermediate-term (2-6 weeks) returns based on analysis of their daily or weekly chart formations and underlying technicals. Support levels may be used as possible stops.
Analysis: NDX: This week we're doing a review of some of the major indices & important index tracking stocks as well and their current positions as we near the end of the third quarter. The first is the Nasdaq 100 (NDX). As can be seen from the weekly chart, after suffering a tremendous bear-market decline from over 5000 down to near 800, a decline of 80%, this index then moved up sharply starting in Oct 2002. It rose in a sharp 45-degree angle, before settling into a more subdued pace from mid-year 2003 to the current time. The rising channel was broken in July after taking out the October 05 and June 06 double-bottom. The current snapback took it back up to the top of the shorter term declining channel and also near lateral price resistance, which is a bit higher up towards the 1620-25 zone. The overall look is one that should be heeded with caution, as the index has bounced off of the summer lows, with very little reflection in the technicals, particularly on the daily chart. The weekly chart also shows heavy duty overhead resistance near the 1625 level as indicated, and should the current rise fail near these levels and roll over, another downward leg could ensue, which could take the indices substantially lower . So the period ahead of us is a critical one for the indices, with a key test of overhead resistance currently underway. If the NDX, in particular, rolls over and takes out the 1445-50 support zone, we could see much lower prices.
Analysis: QQQQ: This corresponding tracking stock for the NDX of course shows a similar pattern. The Q's plunged in May, took out key lateral support & completed a topping pattern , before making lower lows and reaching as low as the 35 1/2 zone, which is currently important short-term support. Overhead lateral price resistance is around the 40 level, at the declining tops line, which was tested Friday at around 39 , before backing off, now representing key overhead resistance. So that 39 ,-40 zone is going to be key for the Qs to prove themselves or not. The three-year rising trendline was broken as well, although the index did snapback and is currently testing overhead resistance. A failure could confirm that a downtrend for the indices would be in progress.
Analysis: SMH: The semiconductor ETF, corresponding to the Philadelphia Semiconductor Index (SOXX) and a major influence on the Nasdaq 100, had been a in a multi-year coiling-type pattern attempt with declining tops and rising bottoms.Also, a 1-year up-channel was in place until May, when not only was the channel broken but the 3 1/2 -- year uptrend line was broken as well. This tracking stock has now snapped back to key overhead resistance in the 34 ,-35
Analysis: SPX: An examination of the broader S&P 500 shows a more bullish trend in place. However, some evidence of technical deterioration and negative divergences are starting to develop. The bullish channel since mid-2003 is still intact, but the last rise off of the double-bottom we had at mid-year has come on lower volume and a lack of confirmation in the technicals, particularly one I follow, Money Stream. Also for the first time in 2 years a negative crossover in the moving averages has taken place just recently. This index reached near the 1315-20 zone, which is key multi-year resistance going back to 2000 and backed away on Friday. This zone could continue to act as a deterrent and needs to be closely watched as well. Any break of the major trendlines, of course, down in the 1240 zone would certainly be cause for concern. Currently 40 day moving average support is around 1275, and that's an area to keep close tabs on. Comparing all the indices and their current posture, we are near definite resistance & overhead risk zones, and extreme caution is urged here. If these levels are taken out and the market thrusts through them, we could see higher prices, but they must be accompanied by confirming technicals or such action could be a major bull trap. Caution is certainly warranted near here .
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