RSSIn Search of Leadership
By Jim Farrish | September 04, 2008 | 8:29 AM | 0 Comments
Trends are determined by leadership or lack thereof. The NASDAQ led the bounce off the July lows, but lately has vacated its role of leader. In fact the index is testing support of the 50 day simple moving average. This is not the type of leadership to change the current downtrend in play. The NASDAQ 100 undercut 1850 support and is making a run at 1800 or even the July low? Why the change? The primary view is oil moving lower. Yes, this is what most investors wanted and believed would be important to sustain any hope of growth looking forward. But, now that it is happening the reality of a potentially slower global economy is taking root and causing a shift in sentiment towards fear. Thus, interest rates have dropped on the 10 year treasury to 3.7%, showing more flight to quality and money flow has moved towards the NYSE and away from the NASDAQ. This all adds up to more bottoming and building of a base. Not exactly what many investors were hoping for.
The second quarter GDP was not the end of the bear market. It was the end of the stimulus package from Washington. The future growth projections are looking better, but we are not out of the woods yet. Things are changing for the better as we see economic data coming in ahead of expectations. This is a sign the level of pessimism from analyst has overshot the lows. The last few months we have seen signs of bottoming, it always takes time to work through the downside sentiment and gain support. In the meantime the market will base and create what could be the near term bottom before the next rise. The word patience comes to mind.
Looking at the chart of the NASDAQ the current pullback could be the test of the July lows we all anticipated would come. It could also be a double bottom technically. Whatever the case the process of finding leadership is never easy. For now we need the NASDAQ to hold support, the S&P 600 to continue to lead, financials to break through resistance, healthcare to maintain its uptrend and retail to continue surprising everyone to the upside. Until there is breadth of leadership the market will not transition into the next uptrend. There are signs of this taking place, but we have to be patient and let it develop
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