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July 29, 2005
Nasdaq Groups
This is an excerpt from today’s Daily Swing at TDTrader.com. I divide the Nasdaq 100 into five groups to see which are leading and which are lagging. The more the merrier. For example, when the Nasdaq 100 advances without help from Semis or Sofware, I become suspect. When the Nasdaq 100 advances with all groups participating, it shows broad strength and makes the advance more sustainable.
All five groups are in bull mode, but some signs of dissent are starting to emerge. The Semiconductor HOLDRS (SMH) is stalling and the Software HOLDRS (SWH) is looking vulnerable to a minor support break. Should SMH break minor support (see chart below), the Nasdaq 100 would likely retreat back towards 1600. The Biotech HOLDRS (BBH) and Networking iShares (IGN) are holding their own, but looking overbought and ripe for some backing and filling.
The Biotech HOLDRS (BBH) stalled yesterday, but the gap and minor support at 183 have yet to be challenged. The stock is still overbought and at channel resistance. This increases the odds of a sideways move or a correction.
For the Internet HOLDRS (HHH), I have added a gray trendline extending up from the early July low. The May gray trendline defined the upswing and the June gray trendline defined the downswing. The July gray trendline defines the current upswing. Watch this trendline and minor support at 58 for a reversal of this upswing.
The Semiconductor HOLDRS (SMH) is holding up progress. This group helped push the tech sector higher in May and early July. SMH is now consolidating with a flat flag and a break above 38 would signal a continuation higher. Conversely, a break below 36.5 would argue for a pullback towards the June resistance breakout and have consequences for the Nasdaq 100.
The Software HOLDRS (SWH) is also weighing on the Nasdaq 100 as the stock opened strong and finished weak. Weakness can be attributed to CA and MERQ. In addition, SYMC lowered its outlook due to foreign exchange issues and is down sharply after hours. A minor support break at 36.3 would argue for a pullback towards the falling flag breakout and blue trendline (35.5).
The Networking iShares (IGN) managed a small gain. The stock looks overbought, but shows no signs of weakness yet. Watch minor support at 28.5 for the first signs of trouble.
Posted by Arthur B. Hill at July 29, 2005 06:17 AM