Bulls were run over on Thursday as a blowout financial report at a key tech company failed to ignite a broader rally. The Nasdaq 100 closed at 14,816, a loss of 2.2%, states Jon Markman, editor of Strategic Advantage.
The decline in the benchmark leaves the NDX less than 1% higher for the week. More importantly, bulls were smacked down on Thursday as they reached the 50-day moving average at 15,215. The early rally came on the heels of much better-than-expected financial results at Nvidia.
I have been writing all week that the stronger numbers were never in doubt. The Santa Clara, Calif-based chip designer is unique in that its processors and peripherals are sold as components in servers made by original equipment makers like Dell and Hewlett-Packard.
Analysts are therefore able to do routine channel checks to see how much inventory is selling. Researchers at five sell-side investment firms upgraded Nvidia shares in the week prior to the second quarter financial statement. The less certain outcome on Thursday was if bears would be forced to cover short positions held in other tech firms.
It's now clear that bears held firm, and in many cases, they stepped up their new selling. There is important near-term support for the NDX at 14,557, the August 18 low. If that level fails, the next line in the sand for bulls is 13,656, the gap created by the May 24 to May 25 rally.
Double Trouble: Our Nasdaq 100 Timing Model continues to point south. Members purchased on August 23 the ProShares UltraShort QQQ (QID) for $13.25, and closed half of the position Thursday at $13.75, a gain of 3.8%. Now set up to sell the second half at $16.30. Set a new protective stop at $13.30.
