Market Forecast for Week of 10/22 (Part I): SPX, Nasdaq

Market Forecast for Week of 10/22 (Part I): SPX, Nasdaq



Last weekend,
I said, “For the new week, earnings are going to roll in. The market is
in a good position to continue higher. We’ll have to pay special
attention to the leaders in each industry as they announce their
quarterly reports. By Wednesday, the market may be ready to set its
near-term course, as IBM, INTC, and YHOO are all reporting on Tuesday.”
What we saw was lots of volatility and some discrepancies between the techs (Nasdaq) and the broader market (SPX). On Monday, the market was skittish as it was anxious before the bulk of the earnings came in. We did very well, though, with BIIB and some high-flying Chinese ADRs. On Tuesday,
the market was again volatile as investors awaited for some of the
bellweather companies to report their earnings. We played it safe and
held on to our cash. On Wednesday, the market charged up the morning as it cheered YHOO and INTC’s
earnings. We raked in some very good profits. But, the broader market
turned weaker in the afternoon, although the techs held on to the
gains. On Thursday, the techs were again strong, outpacing the broader market, as investors anticipated positive news from GOOG. GOOG did indeed deliver, and, set a new all-time high of $658.49 on Friday. But, Friday was a completely different story by itself! The market came down big!!
Let’s take a look:



The Dow was down 366.94 points; SPX lost 39.45 points; and, Nasdaq gave up 74.15 points! It was red across the board! SOX (semiconductors) was weak, down 4.3%. OIH was very weak, down 6.18%. XLF (financials) also couldn’t find any strength and went down 3.32%. FXI (Chinese ADRs) lost 6.21%. VIX (the volatility index) jumped a whopping +24.11%!!
So, what does this all mean?!?! What happened on Friday? Let’s take a look at some charts:
SPX Daily Chart



On the daily chart, SPX
is weak. It has caught its daily lower BB, not a positive sign. Its 10-
and 20-day MAs are curving down slightly and its MACD doesn’t look
healthy either.
SPX Weekly Chart



But, on the weekly chart, SPX
looks much better. It closed above 1500 this week, right where its
10-wk and 20-wk MAs are crossing. The 10-wk MA is about to go above the
20-wk MA, which would start a new bullish formation.
The market had climbed higher 5 weeks straight. It’s about time that
it let off some steam, although Friday’s action was pretty extreme, I
think. Perhaps the options expiration made things worse? After 5 weeks
of running higher, there were so much value in those Oct calls. This is
also why I didn’t open many trades this week (see Happy Trades!!
for more details), and got rid of all Oct calls last week. I actually
had a pretty relaxing week, considering how volatile the market was,
just cashing things in and increasing my cash position (now about 77%).
However, I did give back some gains on Friday in my existing open
positions.
Nasdaq Daily Chart



Nasdaq closed below its 20-day MA, and the 10-day MA
is curving down a bit. Its MACD also dropped on Friday. But, overall,
it is much stronger than the broader market.
Nasdaq Weekly Chart



On the weekly chart, Nasdaq looks even better. Even with Friday’s drop, Nasdaq
at 2725.16, above its July high. Its weekly MAs have just started a new
bullish formation with 10- above 20- above the 30-week MA!
For the new week, we still have lots and lots of earnings to go
through. It’s likely to be volatile, especially early in the week, as
the market sorts things out. Since the weekly charts are much stronger
than the daily charts, we’ll hold cash and see if the market bounces
early in the week, and trade accordingly. Friday’s vent may not have
been a bad thing, although I did think it was a bit severe, as I’ve
said. Especially with another Fed meeting coming up at the end of the
month, it was prudent for people to lock in profits and wait for the
news.
There are, however, some sectors that are not looking too healthy.
I’ll be back tomorrow to look at them, and some healthier ones, to try
to piece together more of the puzzle.
Hope you’re enjoying your weekend!

Good night and HappyTrading! ™