Saturday, January 20, 2007

Weekend notes on the market

Roaring bears arrived in the week featuring Q earning reports from some major tech names as INTC,AAPL, LRCX and IBM led the NASDAQ down. The over 2% loss of NASDAQ erased over 70% of its weekly gains, and in the process, raised the doubts that last ‘week’s break-put is a head-fake. On the weekly charts, a dark-cloud cover candle has formed on the NASDAQ. Both SP500 and DOW fared much better and they are nearly unchanged for the week and remain near the new high. Meantime, the up momentum for all major indices continues to dwindle.

So far, the pattern of the market reactions to Q reports of the tech names can be summed up as "finding excuses to sell". It is clear that at the current price levels, good Q4 reports are priced in, and unless the companies significantly raise the outlook for the next Q, the market will find reasons to sell. If this pattern continues next week when a lot more big tech names will report (MSFT, AMD, TXN,YHOO, EBAY) we could expect further decline in NASDAQ.

Technically, the multi-month up trend remains intact for all the major indices as long as NASDAQ closes above its MA50 (around 2421). If NASDAQ closed below MA50, the next key support is around 2390, any breach of that level will mark the reversal of the current trend. Until that happens, the buy-on-dip strategy can still be used.

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