After finding logical support at its 200-day moving average on Monday as broad numbers of leading and formerly leading stocks became oversold, the NASDAQ Composite staged a textbook reaction rally up into its 10-day and 20-day moving averages. That rally stalled on Wednesday and then failed back to the downside on Thursday. A retest of the 200-day moving average on Friday held on light volume, so the index remains in a tentative position as we move into the thick of earnings season.Meanwhile, the S&P 500 Index ran into resistance right along the prior breakout point in late December at 4743 when the index claimed all-time highs. That roughly coincided with resistance at its own 10-day and 20-day moving averages. On Thursday the S&P 500 then slashed back below its 50-day moving average and ended the week slightly lower. For now the indexes remain in at best a very choppy sideways range while a preponderance of formerly leading stocks are in their own little bear markets.
The Market Direction Model (MDM) remains on a CASH signal.
Two weeks ago we reported on the potential for actionable short-sale entries in certain semiconductor stocks Applied Materials (AMAT), KLA Corporation (KLAC), Lam Research (LRCX), and Qualcomm (QCOM) if and as they broke support at their 20-day exponential moving averages. All three triggered short-sale entries two Fridays ago, but by Monday morning were breaking down hard. At that time we reported on cover points that were occurring in real-time as AMAT and LRCX undercut prior lows, KLAC shook out at its 50-day moving average, and QCOM posted both a U&R and a shakeout at its 50-day line. These were short-term cover points, and the stocks all then shot back up towards their highs. On Thursday, AMAT, KLAC, and LRCX posted big reversals to the downside after moving up towards or through prior highs on an intraday basis. This looked quite bearish, but the very next day all three then rallied sharply right back up to all-time closing highs where they ended the week. This is extremely volatile and erratic action that illustrates the challenges this market poses for short-sellers.
The NASDAQ's test of its 200-day line on Friday sets up the potential for a reaction bounce, although we would not discount the possibility of a break below the 200-day line. As we move into the thick of earnings seasons over the next few weeks, this may influence the market's direction in a more decisive manner, although for many formerly leading stocks, they remain in their own little bear markets. Cash is king.