All Eyes on the Nasdaq

All Eyes on the Nasdaq
by Sam Collins 04/04/08

Yesterday, the market focused on Capitol Hill, as the principals in the Bear Stearns (BSC) tailspin (some say "bailout") were queried by a group of senators who were clearly out of their league when confronted with the financial complexities involved.

The key quote came from the New York Fed Chairman Timothy Geither explaining why the Fed became involved in the deal: "It became clear that Bear's involvement in the complex and intricate web of relationships that characterize our financial system, at the point in time when markets were especially vulnerable, was such that a sudden failure would lead to a chaotic unwinding of positions in already damaged markets."

It would take a brave soul to venture too far into that water and so none did. Sen. Chris Dodd, the chairman of the Senate Banking Committee, replied that he "would try not to second-guess" the Fed and others. Indeed; it was Shakespeare who said, "Discretion is the better part of valor."

No doubt many market players were taken by the testimony, too, since volume dropped and the session meandered around the zero mark for most of the day before closing slightly higher. Initial jobless claims for the week ending March 29 were slightly higher-than-expected (407,000 versus 366,000) and the market opened lower as a result.

But as the testimony on the Hill progressed and the Institute for Supply Management's (ISM) March report on the service sector came in better-than-expected, the market gained ground then sagged to neutral by the close. It seems there was a lot more drama in the Senate's hearings than on the Street.

At the close Thursday, the Dow Jones Industrial Average (DJI) was up 20 points and closed at 12,623. The S&P 500 (SPX) gained two points at 1,369 and the Nasdaq (NASD) also gained two points to close at 2,363.

The New York Stock Exchange traded 1.3 billion shares, and 829 million changed hands on the Nasdaq (NASD). Breadth was slightly in favor of the advancers on both exchanges.

Crude oil futures (May contract) fell $1 to $103.83 a barrel, and the Amex Energy SPDR (XLE) gained 18 cents at $76.68. Gold (June contract) was higher for the third-consecutive day, rising $9.40 to $909.60 per troy ounce, and the PHLX Gold/Silver Index (XAU) rose $1.08 to $181.38.

What the Markets Are Saying

The S&P 500 (SPX) -- like the other broader-based index, the NYSE Composite (NYA) -- has risen to the entrance of its major resistance zone. For the S&P, it is 1,375-1,406.

As of yesterday, it has stalled, at least temporarily -- and no wonder, since a huge amount of overhead that has been built up for a year is providing a supply of sellers. The stochastic and other internal indicators are overbought, so if stocks are to reach into the 1,400 to 1,500 area, volume and breadth must pick up.

For the last six weeks or so, the average volume on the NYSE during up days has been around 1.4 billion shares. To make headway now, it will have to approach 2 billion shares with breadth of at least 3-to-1 positive or else the rally will likely fail.

The third broader-based index is the Nasdaq Composite (NASD). It broke from a channel downtrend through the 50-day moving average and is currently challenging a prior high at 2,419 made on Feb. 1. The advance against this high is being made in a series of bullish flags off of a "V" bottom, and this favors a breakout.

We should watch for the Nasdaq (NASD) to either succeed or fail at this very precise number -- 2,419 -- since it may tell us the future direction of the broader market. Click here to see our Trade of the Day, which includes a chart of the Nasdaq and continues the discussion about this important index.

Today's Trading Landscape

Earnings will be reported by A. Schulman (SHLM), Family Dollar (FDO) and Mosaic (MOS).

Several economic reports are due including the March non-farm payrolls (the consensus expects a 60,000 loss, which would be the third-consecutive monthly decline in payrolls), unemployment figures (the consensus expects 5.0%), average hourly earnings (the consensus expects 0.3% month-over-month, 3.6% year-over-year) and weekly hours (the consensus expects 33.7).

The jobs numbers, reported at 8:30 a.m. Eastern, are the big news today.

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