By Mark Arbeter
If the Nasdaq is true to form, and is putting in a typical double bottom, then it is time to start moving higher. The Nasdaq's close of 2151.83 on Wednesday was 6.1% below the closing low set on January 2. During the last two intermediate-term bottoms, the second lows came in 5.4% and 4.7% below the first pass. Also, the intraday low set on Mar. 1 was 9.6% below the Jan. 2 close, very near the 9.5% and the 8.4% declines during the last two bottoms.
Besides this little nifty exercise in historical price movements, we have not however seen much to lift our spirits. The Nasdaq did close well above its intraday lows on Thursday, tracing out a bullish candlestick (hammer) formation, a short-term positive. These formations are usually seen at short-term lows. However, we would be much more comfortable if the Nasdaq takes out the previous price low of 2291.86 on a closing basis. We mentioned last week, that the Nasdaq could rally to this important resitance area and rollover, which would not be very positive and imply further downside and new lows.
One certain positive for the Nasdaq is the divergence in price and the number of new 52-low lows. On Dec. 20, the Nasdaq saw 16.7% of issues traded hit new lows. With price moving below this level, new lows have only reached 4.7% of issues traded. This divergence is usually seen at market bottoms.
However, it is still too early to call for a bottom and a sustainable advance. Our up/down volume indicators are still bearish but very oversold. These indicators however, need some strong days to turn positive so more time is needed. Also, during the latest decline, some of the sentiment indicators we watch really did not move to extreme bearish levels associated with a strong bottom. CBOE put/call ratios rose to 0.81 on Feb. 28, well beloe the 1.00 reading usually seen at bottoms. The volatility index or VIX rose to 35 recently, below the levels posted in April, October and December of last year, and also lower than 40+ which is usually recorded at major lows.
Another problem which we have mentioned recently is that technology is still overowned by mutual funds and individuals. This, accompanied with the huge amount of overhead supply on these issues will limit any move higher as market participants cut their exposure and their losses as these stocks try to rebound.
We would continue to seek out those industries that are working in this tough market environment and they include defense, small and mid-cap financials, selected medical and healthcare, some chemical, natural gas and oil, food, tobacco, and transportation.
Arbeter is Chief Technical Analyst for Standard & Poor's