A Better Day, But Still Not a Good Day

04/11/2014 12:00 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

Today, despite the fact that it was a better day for momentum stocks, technology shares, and the NASDAQ Composite, but no means was it a good day, and MoneyShow's Jim Jubak expected better performance in light of yesterday's beating.

It’s a better day today than yesterday for momentum stocks, technology shares, and the NASDAQ Composite index.

But it’s not a good day. And I would have expected a better performance today after yesterday’s beating and in light of covering/taking profits by traders who have been short as we head into the weekend.

As it is, momentum leaders—a group that has been getting killed in this sell off—are down again today (if not down by as much as yesterday). As of 1:45, Twitter (TWTR) was off 3.1%, Amazon.com (AMZN) lower by 2.1%, Google (GOOG) down 1.4%, Tesla (TSLA) off 0.19%, and LinkedIn (LNKD) down 2.3%. The iShares NASDAQ Biotechnology ETF (IBB), another victim in this sell off, had fallen another 0.58%. The NASDAQ Composite index itself had declined another 0.73%.

I don’t see anything in those numbers to say we’re set up for an end to this move next week.

Traders seem increasingly complacent/resigned to this move turning into a 10% correction. A lot of the Commentariat is noting that the NASDAQ hasn’t seen a 10% correction since 2012, and thus, the market is overdue. If enough traders believe this, then they’ll stay on the sidelines until they see that 10% drop. Right now, the decline, from the March 5 high at 4357.97, to the price at 1:45 PM New York time today is 7.4%. Close, but probably not close enough to produce a whole lot of bargain hunting yet.

Especially since the NASDAQ Composite has notched a move that puts a fear of a greater than 10% correction in play. On Friday of last week, the NASDAQ Composite closed (at 4128) below the long-term trendline that had held since 2012. And then the index closed even lower (at 4080) on Monday. The upward move on Tuesday and Wednesday brought the index back to the trendline, but then yesterday’s action sent the index back below this level. This is the kind of action that convinces technical analysts that the trendline has turned from support holding up the index, to resistance that acts as a ceiling for the index. To break what seems like an increase in pessimistic chart-reading, the NASDAQ Composite would need to test the 4000-4050 level that saw a lot of volume in both November/December and February, and then bounce off that level. At 4024, as I write, the NASDAQ is certainly in that testing zone. If a test fails here, the next important level is the 200-day simple moving average at 3933.

If I’m reading sentiment correctly, a sizeable number of traders is expecting a drop to that 200-day moving average and then a test from there. A drop to 3933 would bring this correction to a decline of 9.7%, which sounds a lot like the 10% level that might bring bargain hunters out in numbers.

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