The Nasdaq recovered some of Thursday’s steep losses on a better than expected outlook form Nortel. A stronger than expected Michigan consumer sentiment reading also helped.
The ISDEX http://www.wsrn.com/apps/ISDEX/ rose 4 to 176, and the Nasdaq gained 27 to 1945. The S&P 500 added 4 to 1144, and the Dow climbed 50 to 10,035. Volume rose to 1.7 billion shares on the NYSE, and 2.3 billion on the Nasdaq. Advancers led 20 to 11 on the NYSE, and 22 to 14 on the Nasdaq.
Nortel rose 12% after preannouncing better than expected results, a rarity for a telecom equipment company.
Manugistics surged 23% after beating estimates and raising guidance.
Applied Materials and Novellus
edged higher despite a semiconductor equipment book-to-bill ratio that showed a new low in the chip cycle.
Liberate and Cognos
surged after topping estimates.
Western Digital rose 10% after raising guidance.
Research In Motion gained 14% despite warning.
Some technical comments on the market: Note: To see the charts in the text email newsletter, click on the internetstockreport.com story link at the top of the newsletter.
Note: The Market Commentary will be published again on December 28, and will return to a daily schedule on January 2. Also on January 2, don’t miss our top picks for 2002 at WSRN.com, using a method that returned about 50% in 2000 and about 30% so far in 2001. Happy holidays to all, and best wishes for a peaceful and prosperous new year.
To answer a frequently asked question – has the market put in a major top? – we’d have to say the jury is still out on that one. Chris Carolan, who predicted a major top in the Dec. 10-14 timeframe, told his subscribers to go short on December 10, and so far he’s been right. But the only index in a definite downtrend – with a lower high and a lower low – is the Nasdaq (first chart below). The index has a clear declining channel; however, that channel isn’t that steep, and a breakout of that channel to either the upside or the downside would be a good sign of a gathering trend. Otherwise, the index could just continue to drift lower until it can break out of that channel. A good minimum target for the correction would be the 50-day moving average at about 1850; a closing break of that moving average would be a bearish sign. The upper trendline of that channel is at 1990 and falling. One sign that the broader market may also be correcting is that the Dow (second chart) could not break above its broken Dec. 14 uptrend line today despite hitting that line several times. A break of the 200-day moving average around 10,100 and then 10,175-10,215 resistance would be bullish. A break below 9750 would be bearish, and probably target 9300 as a minimum downside target. The S&P (third chart) is the one index that is forming an unmistakable topping pattern here, a broadening top. However, until that lower trendline at 1110 breaks on a closing basis, it could still turn up. A break of that lower trendline would target 1077 as a minimum target, and 1050 would be likely. If it can clear 1155, it could head to 1063-1173 resistance. One other thing we are waiting for is early January, when the Bradley cycles will once again be in strong trends, as happened in September 2000, February 2001 and August 2001. Coupled with a very low trend reading (see ADX in charts below) in the Dow and S&P, whichever way the market moves in January could become a strong trend, particularly if ADX turns up when the indexes begin to make their move. The reason we think the market could possibly head up in January is that the Fed has injected a massive amount of liquidity into the financial system since the September 11 terrorist attacks. A lot of that money has found its way into the stock market, and it may need more time before the effect wears off. But with personal and corporate debt at record levels, at some point it will likely become clear that there is little slack in the economy to put that money to productive use. In short, the economy may very well bounce as inventories are drawn down, but at some point it should become clear that any rebound will likely be a weak one. Coupled with the bottom of the four-year presidential election cycle next year, 2002 is a good year to look for a stock market bottom. But when that downtrend begins, we don’t know; certainly sometime in the first half of the year is likely. In the meantime, we will continue to monitor the markets and the economy for signs of a recovery or a deepening recession.
Special report: For a free introduction to technical chart patterns and an overview of last year’s action in the stock market, visit http://www.internetstockreport.com/guest/article/0,1785,2571_500051,00.html.
