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Mid Week Market Update
12/18/02

NASDAQ COMMENTARY

The Nasdaq Composite reversed Friday's weakness with an impressive surge to the upside Monday to start the week off with a bang.

We mentioned over the weekend, however, we'd moved to bearish the OTC given last week's close for a move to 1250, or so. We asserted we'd be bearish the tech market as long as it held below the 1380-1400 (continued below).

Although this area has been challenged with the Monday's strength, the close proved to be right at the top of the band (1400.33), which was also basically the high. Therefore, it was under serious attack, but never in violation, especially including a margin of error, as one always must do in analyzing the market.

The bearishness from last week re-asserted itself Tuesday and so far today with a move back below the very key 1370-level, under which the bearishness is in force. Full force bearishness will come below 1350, as we've mentioned.

Nevertheless, as long as we hold below the 1400-major support/resistance line, we'll continue to view the market from a bearish perspective for a move to 1250.

Meanwhile, should a reversal be seen that takes the market back above 1400-1420, we'll expect a new up trend to be in the works, as the OTC will have reversed a strong head and shoulder (bearish) formation on the daily chart, while continuation above 1480-1500 will indeed bring us to 1600-1700, as we've mentioned.

For now, however, the proof is in the pudding and right now the pudding is red velvet and suggesting a sell side bias.

We mentioned last week, if this setup makes it past this Tuesday with continued weakness we'll likely expect to see the 1250-level and look to target this mark lowering our trailing stop accordingly.

From a weekly perspective, another close below 1400 the week upcoming will bring us to intermediate-term bearish on the OTC for a move to the 1200-1250-support/resistance band.

In looking at a weekly chart of the Nasdaq, the index is printing an inside-bar to close near the open with both below the key 10weekEMA (red) and toward the lows. This is the beginning of a bearish tail it will likely bring about a move to 1200-1250.

Weekly Chart of the Nasdaq Composite (COMPX)



OEX COMMENTARY

As for the OEX, we moved to bearish the market from a price technical and trend following perspective over the weekend based on the continuation-move of last Monday's ET sell signal.

After an errant buy surge Monday to plot a single close just above the
455-460-support/resistance band and above the key 10dayEMA as well Monday, the bears regained control by Tuesday and in to today (continued below).

As a result, we remain comfortable with our bearish bias on the OEX for a move down to 400-420 with a brief stop around 440.

Confirmation of this bearishness will come with a break below the 450-level, which with today's early session weakness just leaves the key marker a couple points away.

It's actually more important than normal to break down this level since Monday's huge buy surge found support here from a horizontal price perspective.

Nevertheless, the trend remains lower, while we remain below 455-460, so the bias remains weighted to the downside.

Having said that, should we see reclamation of the 455-460-support/resistance band again, depending on market characteristics we may have a new short-term up trend on our hands, based on recent price action. But for now we expect the downside to continue.

Regarding the VIX, the index proved unable to break down the key 30-level bull/bear fulcrum with the recent surge in price. Above 30 the bears are in control, while below 30 the bulls. The index made several attempts at breaking below 30, but has since bounced and thus leads to suggest a continued bearish trend for equities, as long as the index holds above 30.

In looking at the weekly chart of the OEX we notice the market is printing a bearish tail with a last print near the open following trade above the key 455-460-level. This suggests the bulls made a run, but the bears are back in control, for now.

Weekly Chart of the S&P 100 (OEX)