On Monday, after a week of extreme volatility, heavy volume and dizzying price spirals, stocks settled down to a more normal pace. The CBOE Volatility Index (VIX) fell 4.49 to 31.87, down from a high of 48 last Monday. Volume contracted to just 1.11 billion shares on the NYSE after several days at over 2.5 billion shares. The Dow gained 214 points on several takeover deals and the S&P 500 closed 4 points above the psychologically important 1,200 line.
The technology sector became a focus of attention resulting from an offer by Google (NASDAQ:GOOG) for Motorola Mobility (NYSE:MMI) at $40 per share. And Time Warner Cable (NYSE:TWC) offered to buy cable operator Insight in a $3 billion deal.
But despite the focus on technology and a gain for the day of 1.88%, the Nasdaq is in no better shape than the S&P 500 or the Dow Industrials. A neck line break at 2,600 is a highly negative signal, along with the decline of the 50-day moving average through the 200-day moving average, which is called a “Death Cross” because of its ominous implications. But like its sister indices, Nasdaq, in just four sessions, has had a meaningful reactive bounce. For the Nasdaq, it is 223 points of the 530 lost since its last peak July 22. But as it nears the breakdown and pivot point at 2,600, the tough resistance will begin.
One technically positive indicator might help, and that is a buy signal from its stochastic indicator. But volume of 520 million shares traded on the Nasdaq yesterday is miniscule compared to what it will require to punch through the overhead since more than 1.5 billion shares drove the index lower. And the utility stocks, a defensive sector, led all others by a wide margin, telling us that institutions are not yet prepared to jump into the high-risk arena.
We could have several more days of buying before sellers jump on technology and financial stocks again. But this rally gives battered stock holders a gift of higher prices that as recently as late last week they thought might have been gone forever. Stockholders of weak technology stocks should not miss this opportunity to sell in one of the most volatile sectors of all.
