Focus: Semiconductors, BRCM, OMTR, OII, SNDA, AU, MSCC, NOV
By Michael Ashbaugh, Marketwatch | 17 March 2009
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CINCINNATI (MarketWatch)— After plunging 20% in a month, the U.S. markets reversed with conviction last week. The upturn has put the brakes on bearish momentum, meaning the near-term path of least resistance is now higher[!?!] To be clear, this is still a bear-market rally attempt— a retest of the March lows is likely at some point— but again, a near-term trend reversal is likely underway.
The S&P 500's hourly chart details the past three weeks. As the chart illustrates, the S&P topped Monday at 774— just under its three-week range top— before reversing 21 points to close at 753. From current levels, significant support holds at its November low of 741.
Meanwhile, the Dow's near-term backdrop is similar. In its case, the index topped Monday at 7,392— also just under its range top— before selling off to close at 7,216. From current levels, first support holds at 7,105 and is followed by another floor spanning from 6,980 to 7,015.
And not surprisingly, the Nasdaq has pulled in from its range top. Specifically, the index peaked intraday at 1,445— just under resistance— before reversing to close at 1,404. Looking ahead, its first notable support now holds around 1,386.
Widening the view to six months adds color. On this daily chart, the Nasdaq topped Monday just above the January trough, before pulling in noticeably. Still, when contrasted with its sharp spike from the November low, Monday's pullback inflicted little real damage, leaving its positive near-term bias intact.
Moving to the Dow's six-month view, the index has rallied within striking distance of several significant areas. Specifically:
- Its three-week range top holds around 7,400.
- The November low holds around 7,450.
- It faces a five-month downtrend, illustrated in orange, and a six-month downtrend in red.
- Its 50-day moving average currently rests at 7,760.
Again, the index broke sharply atop the November low last week, and subsequently held that area as support. At the same time, it's challenging a six-month downtrend, and the hesitation in this area is to be expected. The bigger picture After bottoming last week, the U.S. markets have staged their most promising rally attempt since the crash.
Consider the following:
- The upturn has been driven by unusually strong market breadth— a 26-to-1 up day, and a 19-to-1 up day across just three sessions— the earmarks of a major trend reversal.
- The S&P 500 knifed through major resistance at the November low on the first attempt.
- The rally's slope— as illustrated on the hourly charts— has been unusually steep.
- The reversal hasn't been driven by government intervention.
Longer-Term Resistance The Next Challenge
Moving to resistance, both the Dow industrials and the S&P 500 now face significant technical tests. Starting with the Dow's 10-year view, it's staged a sharp reversal from the March low. In the process, it closed on Monday at 7,216, edging just barely back atop the 2002 low. Looking ahead, the Dow's next significant resistance holds at the November low of 7,450, an area better illustrated on the daily chart.
Meanwhile, the S&P 500's 10-year view is slightly different. In its case, the S&P closed Monday at 753, placing it just 15 points under the 2002 low. Yet unlike the Dow, the S&P has already cleared its November low of 741 (corresponding to the Dow's 7,450 area) and observed that level as support last week. Also note that if these benchmarks finish March atop the 2002 lows, a 'long-tailed reversal bar' would take shape, and market bulls could contend that March marked a hair-raising, but fleeting, shakeout below major support.
Similar, But Not The Same
Taken together, the Dow has reclaimed its 2002 low, and now faces its next test at the November trough. Conversely, the S&P has reclaimed its November low, and now faces its next test at the 2002 trough. So effectively, both benchmarks have cleared significant resistance— levels you wouldn't expect to be cleared on the first test— but face another notable hurdle just ahead. And perhaps more notably, the 10-year charts now carry an added element: Namely, upside risk has been added back to the equation. Even with last week's reversal, the markets remain deeply oversold, and potentially significant upside remains a real risk.
Summing Up The Charts
This is the most firmly-grounded rally attempt since the crash. It's been punctuated by two 20-to-1 up days, while at the same time, the S&P 500 and the Dow industrials have sustained slight breaks atop significant resistance. Looking ahead, the biggest risk to the current backdrop is a swift 20-to-1 downturn that would nip the recovery attempt in the bud. Yet as long as the pullbacks remain orderly, a (significant) bear-market rally is in play, and the near-term path of least resistance is now higher.
Tuesday's Watch List
The charts below highlight names well positioned technically. These are intended as radar-screen names— sectors or stocks positioned to move in the near term. For the original comments on the stocks below, check out The Technical Indicator Library.
Index Symbol Mon Close Support Resistance
Semiconductor SOX 212.2 201.0 221.0
Profiled last week, the semiconductors remain among the better-positioned sectors. As the chart illustrates, the Semiconductor Index generally held the January trough, even while the Nasdaq was notching six-year lows. At the same time, it's broken atop its 50-day moving average, substantially outpacing all major U.S. benchmarks. The group's relative strength is constructive, signaling a potential trendshift, and likely setting up an eventual test of the February peak.
The charts below illustrate related names poised to rise: Marvell Technology Group(MRVL), Intersil (ISIL), Diodes Inc. (DIOD) and Broadcom (BRCM).
Company Symbol Mon Close Support Resistance
Omniture OMTR $12.70 $12.10 $13.20
Initially profiled Feb. 20, Omniture (OMTR) has returned 22.6% and remains well positioned. Throughout February, it held tightly to its 50-day moving average, outpacing the broad markets as they broke to 12-year lows. And with last week's rally, it's notched five-month highs, clearing a well-defined range top. From current levels, first support holds at its breakout point, around $12.10.
Company Symbol Mon Close Support Resistance
Oceaneering OII $34.71 $32.40 $36.40
International
Oceaneering International (OII) makes equipment for use in offshore oil and gas exploration. Technically speaking, it's rising from a bullish double bottom defined by the January and March lows. The pattern would be resolved with a break atop the February peak, a move that would leave the shares with limited immediate resistance.
Company Symbol Mon Close Support Resistance
Shanda Interactive SNDA $34.82 $34.00 $37.00
Entertainment
Shanda Interactive Entertainment (SNDA) is a China-based operator of online games. As the chart illustrates, it's recently spiked to 10-month highs, clearing resistance at the January peak. While due to consolidate, a pullback to the breakout point, around $34, would mark an attractive entry.
Company Symbol Mon Close Support Resistance
AngloGold Ashanti AU $33.70 $33.00 $35.10
Initially profiled Nov. 26, and revisited two months later, AngloGold Ashanti (AU) has returned 59.3%. Yet despite the steep run, it remains technically well positioned. Since bottoming in November, it's trended steadily higher, closely observing the 50-day moving average. Its uptrend has culminated with a break to seven-month highs, and the shares have since pulled in to a better entry near the breakout point.
Company Symbol Mon Close Support Resistance
Microsemi Corp. MSCC $10.82 $10.10 $11.40
Microsemi Corp. (MSCC) is a beaten-down chipmaker showing signs of life. Late last month, it cleared a five-month downtrend that tracked the 50-day moving average. And more recently, it's broken to seven-week highs, clearing resistance at the December trough. The shares' near-term outlook should remain higher barring a close under their breakout point, just above $10.
Company Symbol Mon Close Support Resistance
National Oilwell NOV $29.47 $27.60 $30.50
Varco
National Oilwell Varco (Nov) is a large-cap oil services name setting up well. As the chart illustrates, it's established an orderly four-month base since bottoming in November. Its recent lift to the range top marks its fourth test of resistance, and the shares face limited immediate overhead on a break higher. (Major resistance is typically cleared on the third or fourth independent test.)
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