-- Posted Wednesday, 19 February 2003 | Digg This Article
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Stock Update
January 27, 2003
Industrials: 7989
NASDAQ: 1325
The market has four more days to try and close above its closing of Dec. 31, 2002. Otherwise the month of January will go down in the books as a net bearish month, which means we can probably expect an overall bearish year ahead based on the reliable "January Indicator."
Some Dow 30 stocks were already close to testing their 2002 lows heading into the final week of January. This will be an important development to watch this week, because of any of these stocks start slipping beneath their previous lows it will be a strong warning that the market is in horrendous shape and has much lower to go before finding another interim bottom. This is especially true since the dominant interim cycle has already peaked and is a few weeks away from its next scheduled bottom.
Beneath the 8000 level, the Dow is in danger of declining to the 7600 level. We pointed this out in the previous newsletter as the figure chart shows this as a probable downside target. The Dow fluctuated around the 8000 level all day Monday and was obviously testing the strength of this pivotal area in light of all the bearish war-related news to hit Wall Street in the past few days. Failing to find support above 8000 on Tuesday/Wednesday only strengthens the case for DJI 7600.
The following Dow 30 stocks are on the verge of testing their previous major lows: ExxonMobil (XOM), currently $31.82 and only a few cents away from last September's low slightly above $31 and not far from the July low of $30. The $30-$31 area is also where the 1998 stock crash low was established when the last 4-year cycle bottom was made and also represents the third and final uptrend line supporting prices since the bull market advance started for XOM in 1995. Breaking beneath $30 in XOM paves the way for a test of the early 1990's low between $12-$15. Interestingly, this low was made at the time of the previous U.S.-Iraq war.
Boeing Co. (BA) is nearing a test of its major long-term support area between $29-$30. This low hasn't been violated since BA first crossed above $29 in 1995. Looking at the long-term charts of the various Dow 30 components, the year 1995 keeps coming up as a pivotal year in terms of establishing major support/resistance levels. Why 1995? Probably because the previous year of 1994 was the 8-year cycle low, and since stock prices across the board started rallying in 1995 (and in many cases crossed major pivotal levels) it's only natural that stocks could be coming back down for a test of these important levels in the year following the latest 8-year cycle bottom of 2002. The old phrase, "What goes around comes around" especially holds true in the stock market.
Home Depot (HD) has been extremely bearish, probably the most bearish Dow 30 component, and still continues to make new lows. It was the first Dow 30 to break its 2002 lows in the New Year and continues to slide lower each week. HD made a fresh low down to $20.49 on Monday and is testing the pivotal $20 support level. Cracking $20 means another decline down to $10 is highly likely (the pivotal level for the years 1994-1996).
Coca Cola (KO), along with Home Depot, shares the dubious distinction of being the first of the Dow 30 stocks to actually sink below its 2002 low. This is an ominous sign for the rest of the list since KO is widely regarded as a semi-defensive stock. KO was down another 2.43% on Monday and closed on the low side of its trading range for the day, finishing at $41.79. KO will have one last chance to find support as it approaches the pivotal $40 level, but if it fails to do so then the 1995 pivotal level of $30 beckons.
General Electric (GE) is close to its 2002 low of $21.50 and was trying to find a short-term bottom Monday by the looks of its intraday tick chart. It had better do so soon, because a penetration beneath the 2002 lows would pave the way for a decline to the 1995 pivot of $10.
Lo and behold, McDonald's (MCD) of all blue chips, has become the first official Dow 30 stock to test its 1995 pivotal level, which means others cannot be too far behind. McDonald's reached its 1995 pivot of $15 last week and actually slipped below it on Monday to close at $14.70. McDonald's posted its first-ever quarterly loss last week as the company that popularized fast food absorbed the costs of closing hundreds of restaurants and scaled back its profit growth targets. The company also said it would close an additional 517 weak-performing restaurants in the U.S. and in Japan. We highlighted McDonald's in our report entitled "Bankruptcy Candidates for 2002," and everyone laughed. We may have been about a year off target but we still maintain bankruptcy is a distinct possibility for the "Golden Arches."
Remember when we kept maintaining that Philip Morris (MO) was a leading indicator for the Dow in 2002? Well the monthly chart for MO shows a "measured move" in the making if the pivotal $35 level is broken. If MO breaks below $35, then we can expect a decline down to the 1995 pivot of $25 and maybe even $20 based on the measuring implication of its chart.
The $40-$41 area is the support to watch in Wal-Mart (WMT), which closed Monday at $47.10. Although this level is not close to being tested yet, it is critical for WMT that it finds support somewhere above it because failing to do so suggests a measured move down to $10, the pivotal low for each of the years 1994-1997.
Stocks
The biotechnology has been especially hard hit by the across-the-board market weakness borne of the interim cycle peak. Several leading biotechs present short sale candidates based on broken trendlines and falling moving averages.
Affymetrix Inc. (AFFX) has broken a 6-month uptrend line and confirmed the break by closing beneath the pivotal $22 level on Monday. AFFX has downside potential to $16-$18 based on the measuring implication of the trendline penetration. Use a close follow-up mental stock for this trade.
Chiron Corp. (CHIR) can be sold short by speculative traders using an initial follow-up stop of $39. Chiron has broken two successive uptrend lines in recent months and looks toppy after a 4-month trading pattern between $38-$42. Chiron closed Monday at $37.70.
Cephalon Inc. (CEPH) can be sold short at the market using a close follow-up mental stop, or on a crossing beneath $48, a chart pivot and also a confirmed trendline penetration.
Neurocrine Biosciences (NBIX), a leading biotech, has broken beneath a 6-month uptrend line and on Monday closed beneath its 30-week moving average. NBIX closed most recently at $43.80.
Gold Stocks
The 8-week uptrend line in many actively traded gold stocks remains unbroken despite the volatile trading of recent days. Placer Dome Gold (PDG) is still above its rising 8-week uptrend line (which intersects $11.25) as well as its 40-day moving average (currently at $11). Therefore the area between $11.00-$11.25 is a good test for PDG this week and will measure its near-term technical strength. If this area fails to support prices, there is another resort in the larger 12-week uptrend line that currently intersects $10.50. A decline to $10.50 would be a Fibonacci 50% retracement of the latest 8-week leg of rally and a Fibonacci 38% retracement of the larger 12-week rally. As we indicated previously, the latest corrective phase of the gold market appears to have begun, yet it remains uncertain how "deep" this correction will go. A test of the 38% level in many gold stocks this week will provide more insight. Failing the 38% level, the 50% retracement level is probably next.
The 8-week uptrend line in Goldcorp (GG) was being tested on Monday at the $12.50 level. The 40-day moving average is slightly beneath this level at about $12, so the area between $12-$12.50 is important to watch in GG over the next couple of days, especially as $12 is a recent chart pivot. If $12 fails to hold, then its on down to test the 24-week trendline at $11.
Momentum powerhouse Anglogold (AU) has completed a 5-wave Elliott Wave advance and looks to be headed for a test of $36 (the 20-day moving average), and if this fails then the 40-day MA is the next likely test at around $34.
--Clif Droke
The Bear Market Report, a combined forecast and analysis of U.S. stocks and indices and international precious metals stocks is published on Monday, Wednesday and Friday. A 1 year subscription to the Bear Market Report is $144 and 6 months is $89. Clif Droke is also the author of numerous books on trading and technical analysis. You can subscribe to BMR and pay online here |
