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Nasdaq Commentary

The Nasdaq Composite finally gave it up under the pressure of the key 200dayEMA
(40week). We mentioned Wednesday?s early print was turning into an outside-day
reversal to close below Tuesday?s turn-in-trend session following Monday?s bearish
reversal.

We?ve mentioned the key 1460-area as marked resistance and although the OTC had
support from the 50 (10w) and 10dayEMA?s from 1390-1430, the bullishness derived from
those measures would likely not be enough to bring about a break above.

With Wednesday?s session concluding with the anticipated outside-day reversal and
Thursday?s follow through, the market has apparently taken the path of least
significant resistance.

We mentioned once the market corrected the recent run up, likely with a move to test
1380-1400 once again, we?d become more bullish for an all-out attach on the very
significant 1450-1500-level.

With Friday?s move lower, we?ve now seen that retracement and thus go on the lookout
for an assault on 1450-1500 following some potential consolidation.

However, given the severity of the sell off Friday to break the 1400-level by the
close, we expect the consolidation may be a bit more than normal, unless the bulls
come back in quickly to save the composite from a new intermediate-term bias to the
downside.

From a weekly perspective, the market indeed followed through on its early promise of
plotting a bearish outside-week reversal. This comes under the pressure of the down
trending 40weekEMA, which serves as the last key measure of trend following
resistance. Although the reversal could be simply technical in nature, the
bearishness derived does merit attention.

To garner more bullishness, the market will need to reclaim the 40weekEMA (red) and
preferably 1500. Having said that, the composite is now back below the 10weekEMA
(green) and the 30-week in blue suggesting the bears are in control.

S&P 100 (OEX) Commentary

As for the OEX, the market began the week with a bearish tail reversal off the
475-level and by Wednesday, put in another reversal in impressive fashion with an
outside-day.

In fact, the OEX proved to be such an under-performer relative to the Nasdaq
Composite, the market never actually touched the be-all end-all of long-term trend
following significance in the 200dayEMA (40week) and therefore never touched the
major support/resistance line of 480.

What we?re seeing now is a turn lower in the short-term trend, as you can imagine
with this week?s losses, while the market is seeing a convergence of key
intermediate-term support in the 50dayEMA and the 455-460-support/resistance band.

So, what we expect is a break below 455-460 to bring us clean air for a continuation
move to retest 440, at least with an option to tag 400-420.

Meanwhile, on the plus side, should the market bounce back above 480, we?ll then have
clean air on the upside, from a price action perspective. While we hold between
460-480, the market should continue to chop around in a neutral fashion.

In looking at the VIX, we see the likelihood of a spike higher toward 30-32 and a
retracement of the strong move lower. This is thus bearish in general for the market
as long as the index holds above 26.50

In looking at a weekly chart of the OEX, we notice a reversal and a lower high coming
under pressure of the down trending 40weekEMA (red). This is therefore bearish
although from within a neutral context given the ascent of the 10weekEMA (green).
Below the latter and we?ll look for 440, while above the former it?ll be a run to
550.

The Bottom Line

Both the OEX and OTC failed to surmount the mother of all key trend following
measures in their respective 200dayEMA?s (40weeks) this week. After several attempts
and a very stubborn bull, the market has finally done the smart thing and that?s to
correct the bullish complacency and move lower to pick up more buyers. To break such
marked resistance, you need to have strong momentum. Although we did have strong
momentum early on for the run up to the 480-level and 1460-level in the OEX and OTC
respectively, the momentum clearly petered out. It took several days, but the bulls
finally figured out the market wasn?t ready to move higher. However, in their flight,
they have logged some serious damage potential to the intermediate-term trend side
bias to the upside, which will only hold if the markets hold above 455-460 and
1380-1400 respectively. For now we?ll have to wait and see, as a break could spell
more downside.