Jan. 8, 2007 — Does the BCS computer also run the stock market? Those folks never get it right. Just when you thought they had it all figured out, here comes little Boise State to put a fly in the ointment. The landscape is not very different in stock market land. For the past month, the Dow and S&P 500 have been leading with tech lagging, which is the usual setup for a large-scale correction. Then the biotech sector, the dormant market leader, suddenly wakes up. Thursday's candle was the most positive in the BBH since September 27 when the group punctured its declining 200-day moving average for the first time since it topped over a year ago. On Wednesday, it tested that same moving average and held. At least for now, former resistance seems to want to become new support. While the NDX and NASDAQ appeared ready to head south for the winter, conditions may have just changed on a dime.
Coming into the New Year, we had a confluence of weekly cycles, which peaked in late December, but there is another important one coming in mid January. The view here was this could hold up the markets at least until then. As such, the anticipation for last week was a stalemate. The markets did not disappoint as the NASDAQ opened at 2429 and closed at 2434. The others were either slightly more bullish or bearish. What could not be anticipated was the circuitous route the indices took. Once again, Fed noise took center stage, as Wednesday's large black candle on the hourly time frame was probably a little too big for the bearish case, which implies sellers likely washed themselves out in the near term. The late day recovery led to a high wave candle on the daily chart. A high wave candle is a small body with tails on both sides, which implies confusion. After a high wave, candle conditions are usually unstable. This was seen in the Dow and S&P 500 but tech came out strong the next day.
Since the confusion came after a period of selling, the bears are likely more confused than the bulls, because when the dust settled, we had the BBH holding that 200-day moving average. Just for good measure, the SOX also held the 200-day moving average as well. That does not mean we are out of the woods by any means. There was no follow through on Friday as the NDX burst stopped at the 200-hour moving average, which it could not hold. Friday's small gap down is not the kind of activity you want to see after the recovery. This remains a confused market.
The Forecaster's stance has not changed. The view here is the markets can tread water and be more positive than negative until the middle of the month. Jan. 17 is the 610th trading day window since the August 2004 low, and that would be the highest probability time for the market to show its hand. Only a week away, we should stay in the trading range until then. Coming into this week, it appears the S&P 500 is at a small crossroad. Technically, it can either keep the past week's low or have a small leg down to 1395. If that is the case, the Dow can still elect to meet its rising 200-hour moving average at 12350. For the NDX, it closed the week right on its 200-hour movig average at 1785. In the last two issues, I commented that it was trading below it. It could very well flirt on either side of it the whole week. To get a clue you should scan some leading tech stocks. Tech flier Google may have turned a corner here and even Yahoo may have confirmed a bottom. Others may only be in a technical bounce but the whole index is still fighting overhead resistance. Boise State may be here to stay and now we have to consider how far and how long the biotechs can go.
Comments or feedback? E-mail Fibonacciman@aol.com.
