You say you want a resolution? Well, you're gonna have to wait.
With apologies to The Beatles, those traders hoping for clarity regarding the
near-term fate were stymied by Tuesday's ultimately inconclusive action.
Early on, it appeared Monday's definitive breach of the Comp's 50-day moving average would be a catalyst to accelerate the index's previously modest, yet steady, five-week decline. But after trading as low as 1991.05 early Tuesday, the Comp recovered to trade as high as 2018.07 midmorning, a move that encouraged optimists that history was about to repeat.
Heading into this week, the Comp had fallen back to or below its simple 50-day moving average seven times since March 2003. Each time, the breach encouraged bears to declare the tech rally to be "over and done."
Yet, on every occasion, the Comp soon rebounded and subsequently rallied to new cycle highs. Amid Tuesday's midmorning bounce, many bulls were encouraged that the first part of the pattern was playing out yet again. But the Comp proved unable to sustain the advance.
The index closed down 0.1% to 2005.44, while over-the-counter breadth favored declining stocks again, albeit less dramatically vs. recent days.
Although the Comp closed above the psychologically significant 2000 level and remains (barely) positive for the year, it's clearly too soon to declare the index's troubles over.
After a brilliant rally, the entire equity market faces headwinds, including potentially higher interest rates, a recent slowdown in the rate of corporate spending, still-lackluster labor markets, and an increasing supply of stock from the recent revival of IPOs.
Tech stocks, particularly, also are suffering from the process of mutual funds "adjusting beta in their portfolios" in the first quarter after the huge rally in momentum shares, said Scott Curtis, managing director of equity trading at Kinetics. Notably, 2003's tech stars such as
have suffered in recent weeks.
Curtis declined to discuss Kinetics' own trading, but suggested all the talk about the Nasdaq's slide "maybe means we're near the end of the selloff."
Such contrarian views aside, there's still a sense among many market participants that the strong fundamentals have been "priced into" shares at current levels. Such sentiments were furthered by the inability of recent good news from names such as
to reignite the tech rally.
For followers of technical analysis, the news is not as important as the market's reaction to the news. To many, the Comp's recent failure to benefit from apparently good fundamental news is yet another sign that tech stocks may continue to struggle, at least for the near term.
"For the Nasdaq, our numbers are showing buying enthusiasm has faded," said Paul Desmond, president of Lowry's Reports. "The amount of selling has increased dramatically over the last couple of weeks. In our minds, that says we're due for a much deeper correction than anything we've seen in the last 11 months."
With the Comp now down about 7% from its Jan. 26 multimonth closing high of 2153.83, Desmond believes the index is only about halfway through an "overdue short-term correction."
Still, Desmond stressed that 12% to 14% corrections for the Comp are "pretty standard fare" on a historic basis. Additionally, he noted that the characteristics of a major market peak remain elusive. New 52-week highs peaked in early December, but usually climax six to nine months ahead of a major market top, he said. Meanwhile, the advance/decline line and net upside volume indicators were making new highs earlier this month.
"What's happened is investors have gotten used to shallow corrections and forgotten what normality is like," Desmond continued. "Even if we get a historically normal short-term correction, it will probably scare the dickens out of a lot of people."
Paradoxically, such an increase in fear -- something on the rise lately but largely missing thus far -- likely would signal an end to the correction.
"Before this is over, you need to look for evidence of panic selling," characterized by at least one session with 90% downside volume, he said. "We're watching for some signs of panic selling and haven't seen that yet. The real danger is people trying to jump back in prematurely."
Walking the Thin Line
Notably, Desmond's view -- that the Comp remains vulnerable near term but likely hasn't reached a major top -- was echoed by several other technical analysts.
Earlier this week, Ron Daino, Citigroup Smith Barney senior technical strategist, said the Nasdaq is flashing a sell signal and set a downside target of 1876, equal to the index's November lows. Previously, Daino had a buy recommendation on the Nasdaq dating to late April.
After the bell Friday, James Rohrbach of
similarly issued a sell signal on the Comp. Rohrbach, one of
top 10 market-timers for the six months ended Feb. 13, maintained a long-standing buy recommendation on
New York Stock Exchange
Indeed, Desmond also suggested the Nasdaq will remain the "weak sister" in terms of its relative performance vs. the
Dow Jones Industrial Average
, although he believes those blue-chip indices also may be due for a short-term correction.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to