Focus Letter

Market Ends the Week With Strong Gains

Good day! Last week the Nasdaq Composite saw its strongest weekly point gain in more than four years following data supporting a slowing economy and increased speculation of a continued hold on interest rates. The gains on Friday alone were not as spectacular as earlier in the week, but after initial weakness out of the open all three of the major indices still posted a higher close. The Nasdaq Comp. ($COMPX) gained 6.34 points to close the week at 2,163.95, while the Dow Jones Ind. Ave. ($DJI) rose 46.51 points to end at 11,381.47, and the S&P 500 ($SPX) added 4.82 points and finished the week at 1,302.30.

Friday morning began with the Dow gapping up strongly into the open while the Nasdaq saw some slightly downside. A trading range then took place for the first 15 minutes or so of the session before the bears won the tug of war and quickly fell apart. The Dow gap rapidly filled, as did the smaller gap in the S&P 500. The market found support when the S&P and Dow hit lows from the prior afternoon and the weaker Nasdaq came into its 5 minute 200 simple moving average as well as some price support from a few days back. The pace then slowed with a retest of this support level in the Dow and S&Ps, creating a 2B buy setup around 10:30 ET that turned the market back around on the day.

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The initial move up off the morning lows was a strong one, but the pace slowed a great deal after hitting the 5 minute 20 sma. From that point on the indices continued to climb throughout the rest of the day, but it was a difficult move to time if you missed the initial reversal. The uptrend was very choppy, but it still managed to hold the 5 minute 20 sma for support. The volume, while average out of the open, had declined significantly into noon and remained light into the close.

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I am not really seeing much at the moment that suggests a reversal of this upside action heading into the week. The Nasdaq is favoring a bit more of a trading range due to stronger resistance on the daily charts at the 100 day sma, but the S&P 500 and Dow continue to look higher. The concern is still going to be the fact that the upside had not had much for corrective periods and, like Thursday afternoon, can more easily give way to rapid intraday selloffs with little notice. The one thing that the move Friday afternoon has going for it though as compared to the move into Thursday afternoon is that it was building momentum. The futures are currently down a little bit in all sessions trading (it's 21:15 ET), but I am still looking for strength into the open, followed by another intraday correction off highs shortly thereafter.

Economic data is light this week, but homes sales and durable goods orders for July will be closely watched. The homes sales data in particular is expected to deal a blow. The housing market here in south-east Florida is certainly strained at present. Looking for a change of scenery, we've had our home listed since the first of June with the largest realtor in the area and have yet to have had anyone even drop by to look. Our realtor says they have had only a handful of buyers over the summer with a very large supply of inventory, although housing prices have not really declined much. Granted, it is technically hurricane season and the insane increase in insurance premiums does not help matters. Ours increased about 50% or so this year... Ouch... Nor does it help matters when many folks bought their homes based upon the payment rates of an adjustable rate mortgage several years ago and are now facing much higher payments than anticipated. This is a common topic for the local media. I've heard recently that some of the real estate companies are trying to sue the press, saying that their hype of a declining housing market actually created the lack of buyers, but as we all know, nothing is ever that cut and dry.