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December 05, 2005
Hold that gap, Utilities underperforming, TIPS gap down and OPNW looks weak.
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Good day! The gaps keep coming and the gaps keep holding. QQQQ gapped higher on Thursday and this gap is getting an immediate test today. It is ok to take back some of the gains seen on Thursday/Friday, but not all. A move below the gap and below last week’s low would be most detrimental to the bullish cause.
Here are some gaps from January 2003. The first one on 9-Jan held (green oval) and QQQQ moved higher. The second one did not hold and the index stalled for a few days (blue oval). There was a support break on 15-Jan and then a gap down on 17-Jan (red oval). This gap broke support and filled the first gap. QQQQ best hold its last gap or else….
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While the Dow Industrials and Dow Transports are trading above their summer highs, the Dow Utilities remains well below its early October high and has yet to recover from the October thrashing. A rising flag formed over the last few weeks and a move below 385 signals a continuation lower.
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The S&P Small-Cap EFT (IJR) formed a hanging man on Friday. This is a bearish candlestick reversal pattern that requires confirmation and a move below 58 would be short-term bearish. Notice that support at 58 stems from broken resistance.
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Bonds were hammered last Thursday and money moved out of bonds and into stocks. The iShares ~20-year T-Bond Fund (TLT) and iShares Lehman TIPS Bond Fund (TIP) both moved sharply lower. However, the TIP gapped down and broke below its November low. If inflation were a real concern, I would expect this bond to hold up much better than its non-inflation-hedged counterpart (TLT). The relative weakness in TIP shows that bond investors are more concerned with economic growth than inflation. TOP needs to move above 104 for inflationary concerns to move back to the forefront.
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Openwave Systems (OPNW) has been underperforming and looks weak. The stock broke support in mid October and then surged in late October. The surge lasted one day and the stock traded flat in November. The Nasdaq surged to new highs in November and this shows relative weakness. While the Nasdaq gapped higher and closed strong on Thursday, OPNW broke support at 16.5 with high and looks headed lower.
Posted by Arthur B. Hill at December 5, 2005 11:19 AM