Nasdaq Fails to Regain Bull Channel

Big-cap stocks led a rebound on Wednesday that, combined with Tuesday’s tepid advance, recovered some but not all of Monday’s steep losses. The Dow Jones Industrial Average gained 0.8%, leading the other major indices, and the S&P 500 was up 0.7%. The Nasdaq closed 0.5% higher, while the small-cap Russell 2000 only eked out a 0.2% gain.

Greece’s financial woes and their potential impact on other nations were the focus of investors again. And it was a see-saw trading day with the Dow industrials gapping up on the opening, taking back most of the gains by midafternoon, and then rallying on the close. Traders seemed to keep one eye on the tape action and the other on headlines.

Early in the day, a new bailout proposal from Greece dominated trading, but that offer was dismissed by European lenders. German Chancellor Angela Merkel made it clear that there would be no further consideration of a Greek offer under after Sunday’s referendum, saying, “a compromise at any price” is not worthwhile.

Greece was not the only problematic overseas market. In China, the Shanghai Composite dropped 5.2%, falling back into bear market territory with a 22% decline from its mid-June high.

The Puerto Rico Electric Power Authority paid bondholders all principal and interest due. However, Puerto Rico’s governor said the commonwealth cannot pay its debts. His comments not only put the country’s bonds in a tailspin, but many tax-free bond funds reflected the island’s weak financial status.

Nine of the 10 S&P sectors gained, but energy was off 1.3% and struggled throughout the session due to a 4.2% decline in crude oil to $56.96 a barrel. Financials, up 1.5%, and consumer staples, up 1.3%, led all other sectors.

Gold futures fell 0.2% to $1,169.30 an ounce. And the 10-year Treasury note’s yield rose to 2.43%, up from 2.35%.

In U.S. economic news, private sector job growth in June increased more than expected. The ISM manufacturing index for June was also better than expected. And construction spending in May topped forecasts.

At Wednesday’s close, the Dow Jones Industrial Average rose 138 points to 17,758, the S&P 500 gained 14 points at 2,077, the Nasdaq advanced 26 points to 5,013, and the Russell 2000 was up 2 points at 1,256.

The NYSE’s primary market traded more than 840 million shares with total volume of 3.7 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, and on the Nasdaq, advancers led by 1.1-to-1.

Nasdaq Chart
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Chart Key

Wednesday’s bounce by the Nasdaq failed to regain its lower support line (now resistance) of the violated bull channel. In addition to resistance from that line, there is resistance from the 50-day moving average at 5,048 and massive overhead at the closing highs of March (5,026), April (5,092) and May (5,107).


The failure of the Nasdaq to regain the bull channel that began in February is technically unfavorable. Therefore, the target for Monday’s breakdown is probably between the 61.8% Fibonacci number at 4,782 and the 200-day moving average at 4,800.

I recognize that I could be wrong and that Wednesday’s high volume was a positive; however, it was offset by the weak breadth numbers.

Well-known and respected technician Jeff Saut of Raymond James concludes that Monday’s “Dow dive” of 350 points with 90% of total volume on the downside qualifies as a “selling climax.”

Maybe so, but waiting for this tired bull to regain its former power may take all summer. By October, we will almost certainly know whether this was our last buying opportunity or Mr. Fibonacci’s numbers will have provided a better buying opportunity.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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