Painful Complacency

By Duru

February 13, 2005


Last week ended with gains for the Dow and S&P 500 and a nearly flat NASDAQ. The post-earnings complacency is so far playing out but the road there sure was painful! The Dow and S&P 500 took big dips on Wednesday before recovering quickly to end the week with smiles. The NASDAQ recovered very late from Wednesday's selling and now lags the market. I had expected it to follow in step and conquer the overhead resistance represented by the 50 DMA. If the Dow and S&P 500 manage to get capped by their 52-week (and multi-year) highs (as I am still predicting), then it could be "game over" for the Nazz… Take close note that as I suspected the low readings on the VIX needed to be worked off before the indices could move higher in the short-term…Sure enough, after languishing Monday and Tuesday, the VIX took a big leap on Wednesday.

Let's take a quick look at some of my other calls and claims from last week (please see disclaimer here):

Apple forgot to carry its buddies along last week. Witness the shelling in SYNA as speculation runs wild about a loss of business with Apple. Witness the renewed selling in PLAY (no one seems to really know what's going on here). Only ADBL and SGTL are trying to hang tough after being taken out in sympathy with their Apple supplier brethren.

Smith Barney has joined the club in trying to call a top in the housing stocks. It was actually a neat little trick allowing the analyst to stay bullish with buys on several housing stocks while cutting price targets. Given his startling revelation that "…as earnings deceleration occurs, it will usher in a period of more modest stock price performance," he also threw in some obligatory downgrades to hold. It was a classic case of wanting to call a top but not wanting to miss additional gains in case the madness continues. After the dust settled, the housing index made a nice little "hammer" that I suspect will lead to more buying and new 52-week highs.

MACR, COO, IMAX, VLO all made marginally higher new 52-week highs while MSO, AZO, JWN, and ERTS pulled back into nice pockets with buying potential. LSI churned out a further push higher while AUO stalled out and COCO got smacked down on no news that I could find. PBY corrected a bit. ADSK and IBM failed to climb back above the resistance represented by their 50DMAs. But the best call of them all was the $75 bottom EBAY punched out. Not only was this one on the money, but the painful way in which the bottom was established was indicative of the kind of week tech had. As late as Thursday, the stock had fallen back down several points to approach $75. I suspect more drama is ahead as GOOG's  final lock-up unwinds on the 14th. Now that it seems the sellers have finally gotten tired of unloading all that cash, let's look for a run to $90 or $95.

I am not sure what to expect for the rest of this month (do we ever really know what the future holds?!), but the drama is getting thick. Some new highs on the major indices will certainly invite more buying. Let's see whether the sellers are just as diligent in trying to punch in another false break-out.

Regardless of how things play out, as always, be careful out there!


© DrDuru, 2005