Market Alert - The Close

The selling on NASDAQ and SOX continued at the Monday open, and it dragged the NYSE indices into the mess as well. The result at the end of the session, however, was very similar to Friday, at least in terms of the winners and losers.

The losers were still NASDAQ and SOX, finishing down a half percent each. The NYSE indices all were off less than 0.2% and SP500 managed a positive close.

SP500 -2.38, -0.10%
NASDAQ -32.46, -0.52%
DJ30 -36.30, -0.17%
SP400 0.08%
RUTX -0.18%
SOX -0.51%

It was a lot worse before a recovery that started a half hour into the session. NASDAQ dropped 98 points to near the 50 day EMA before recouping 65 points to the close. SOX dropped a whopping 37 points before it found some buyers and rebounded. By 10:30CT, 2 hours into trade, however, the recovery ended. Stocks worked laterally the rest of the session.

Okay, so stocks came off the lows showing doji. The good is that NASDAQ and SOX both tapped near the 50 day MA and rebounded; bouncing off support and showing a doji is a good indication buyers came in.

The bad is that is could just be a continuation doji, i.e. a doji or day of rest after the Friday bombing, followed by a continuation of the initial violent move Saw these a lot on the way upside. Perhaps with the 50 day EMA test that will not be the case.

The other bad indication of sorts is the rebound occurred in the first two hours and then could go no farther. NASDAQ and SOX, along with their major components, recovered off the additional selling but could not move any higher. That suggests they shot their ammunition on the early bounce and didn't have any left. At least the sellers didn't swarm in, but the more important aspect for the moment is the buyers could not push the move higher.

Again we will have to see how the move plays out. In the past when the market took a violent jolt it steadily started a recovery upside once the plunge protection team stopped the selling and showed everyone that it was still in the game. That meant the buyers could come back in, buy, and drive stocks to higher highs.

Of course we watch to see if that occurs. Many big names tested lower but reversed, and if they continue upside they offer the possibility of nice moves. NTES and FB come immediately to mind.

You have to watch for the head fake, the rebound from the selling that recovers some of the losses but then fails. Many are skeptical of this move and are concerned about this scenario. I suppose you could say I fall into this category. Others say go ahead on and buy the dip. Certainly some did that Monday after the initial plunge. Again, the fact that stocks initially bounced but then could do no more over 5 hours of trade is a concern for additional upside.

Thus we will have some plays on rebounding big names but also proceed under the very real possibility that the magic recoveries may have run out of magic this time. As such we have some good plays on the non-NASDAQ and non-chip stocks and if they get more money rotated their way and continue upside, we can play those emerging leaders.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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