While both the S&P 500 and Nasdaq 100 are showing the effects
of the current correction, there are significant differences in the technical
picture on both charts. With the S&P 500 we might ask, "Where's the bear?" The
50-EMA of price is still above the 200-EMA, and most important, price still
remains within the nearly three-year rising trend channel. The most negative
thing about price action is that this correction is currently making a second
retest of the rising trend line, something that didn't happen on the three
previous bull market corrections. Unless things change for the worse, I'd have
to say that the S&P 500 remains in a bull market.
Things look a lot worse for the Nasdaq 100 Index. The 50-EMA is below the
200-EMA, and the price index has dropped down through the bottom of the rising
trend channel that has defined the last few years of the bull market. I have no
hesitation saying that this index has entered a bear market. This is not good
because it tends to lead the broader market.
One thing that may be considered positive on both charts is that the Percent Buy
Index (circled) is oversold, but, as you can see, oversold conditions do not
always result in price rallies. While the Nasdaq 100 has been oversold for over
a month, prices have continued to deteriorate. During that same period, the S&P
500 has held its own, but, again, the oversold condition has only brought a
failed rally and second retest of support.
Bottom Line: Our market posture is neutral for both indexes based upon
the status of our primary timing model. I think that's a good thing because the
market could be transitioning to a bear phase. If this is the case, oversold
conditions are dangerous. They can result in furious short-covering rallies that
are subsequently prone to failure.
Carl Swenlin is a self-taught technical analyst, who has been
involved in market analysis since 1981. A pioneer in the creation of online
technical resources, he is president and founder of
DecisionPoint.com, a premier
technical analysis website specializing in stock market indicators, charting,
and focused research reports. Mr. Swenlin is a member of the
Market Technicians Association.
