Nasdaq Composite Index Recovers from Yesterday’s Losses with Best Day this Month

The Nasdaq Composite Index closed at 5,243.84, up +44.01 (+0.85%) higher from its previous close of 5,199.82. Today, the index traded between 5,239.44 and 5,264.27 before settling. The 52-week range presently sits at 4,209.76 and 5,342.88.

The Nasdaq’s volume of 325 million shares trading hands was in line with Monday’s volume of 325 million. The index posted its largest gain since the beginning of October.

The Nasdaq Composite Index opened +55.5 (+1.07%) higher at 5,255.32. The index traded relatively flat after opening sharply above the previous close. During the day, it made a slight gain during the first 3 hours but gave up those additional gains in the last hour of trading:

NASDAQ - Recap and Outlook for Oct 18  2016 - ONE

On the intra-day chart (above) we can see that the Nasdaq Composite Index started the day off on a high note.

The early rally found a ceiling at the first line of resistance of a sideways channel. Throughout the day, the index fell half way between this thin, red line and the thin, yellow line which acts as the mid-way point of said channel.

The index then rose to the half-way mark between the primary and secondary resistance lines before collapsing back to below both red lines.

The Stochastics and Relative Strength Index both ended the day with negative trajectories in over-sold territories. This is unsustainable and that is why I expect them to both reverse higher immediately (see green arrows).

Looking at the entire session as a whole, today’s gains may have been exaggerated. This is according to the blue trendlines which are based upon the MACD peaks. They suggest that the index could correct back down to just above 5,200.

NASDAQ - Recap and Outlook for Oct 18  2016 - TWO

Today’s 5-day chart (above) of the Nasdaq Composite Index also shows that the lower indicators (Stochastics and Relative Strength index) are in over-sold territory and ready for a leg higher (green arrows).

The fact that they seem to have a very large amount of room to go higher when they begin to increase is particularly interesting considering the fact that the index is already in the upper half of the current channel.

This means that I will be paying attention to see that if/when the lower indicators reverse upwards; I will watch to see if the Nasdaq reaches the major resistance line.

Even more important, will be whether or not the power provided by the lower indicators will be enough to push the index beyond this thick, red (horizontal) line near the red arrows. If so, then we could see the index head higher into the end of the month when the seasonally strong November begins.

Before the bulls get their hopes up too high, I would caution that the blue and pink trendlines, based upon the MACD peaks and bottoms, suggest that the most likely outcome tomorrow is for a fall back into the lower half of the sideways channel to occur.

NASDAQ - Recap and Outlook for Oct 18 2016 - THREE

The 5-day chart (above) is taken from my previous report on the Nasdaq.

In it, I predicted that the index would take the path of least resistance today by swinging back into the upper portion of the existing sideways channel when I said:

“It will take a considerable amount of energy, or news, in order to break out of this range (one way or another). Since we are currently nearer to the support, I see a more bullish bias in the near term.”

I also mentioned that the bulls had the advantage when I said “Looking at the blue lines, based upon the MACD bottoms, we can see that we could move all the way back up to the mid-way point of the present range” and that “The Stochastics has the potential to begin a new jump higher from here.”

NASDAQ - Recap and Outlook for Oct 18 2016 - FOUR

On the 1-month chart (above) we can see that the Nasdaq Composite Index is showing a much different story.

Those whom have read my previous reports know that I give priority to longer-term indicators than shorter-term ones. All three of the lower indicators on this longer time-frame show a bearish trajectory at this time.

The Relative Strength Index is closer to neutral territory but could still decline, while the Stochastics has even more room to fall as it is still near elevated levels. The MACD, which is just crossing over (to the downside) is forming a top and has the most room to fall lower.

The blue trendlines, based upon the MACD peaks, still suggest that the index should quickly revert back to the psychological 5,300 level. That happens to be near the purple dotted line which is a long-term trendline that acts as a very powerful magnet.

Since there is some conflict within the indicators, I would consider staying on the sidelines or, at the very least, implementing very tight stop-losses whichever direction you are choosing.

For the trailing 1-month period, the Nasdaq Composite Index has made a -0.01% return. Going back a year, it has yielded +7.31%. As U.S. equities made their biggest gain in almost 4 weeks, the Nasdaq outperformed the other two major U.S. averages today.

The Dow Jones Industrial Average rose +75.54 (+0.42%) higher to 18,161.94 while the S&P 500 closed +13.10 (+0.62%) higher at 2,139.60 which was its best day this month.

All 11 major industry groups of the S&P 500 gained today. The Health Care (+1.07%) sector was the best performer, perhaps on speculation that Hillary Clinton is improving her chances of becoming the next U.S. President.

That was followed by Materials (+0.94%), Utilities (+0.82%), and Financials (+0.76%). On the other hand, Telecoms (+0.14%) came in last place today.

Good financial earnings came out as both stocks and commodities rebounded today. Equities advanced as Federal Reserve speculation weakened the dollar.

Today’s inflation report matched or slightly missed estimates. Consumer prices rose in the U.S. at the fastest pace in 5 months.

The Core CPI (MoM) for Sept. came in at 0.1%, below the 0.2% that had been expected (0.3% previously). The Core CPI (YoY) for Sept. came in at 2.2%, below the 2.3% consensus and previous figure.

Tomorrow, investors will be looking at housing data and oil inventories.

NASDAQ - Recap and Outlook for Oct 18 2016 - FIVE

The three biggest gainers on the Nasdaq today were: MakeMy Trip Limited (MMYT) up +9.050 (+44.36%) higher to $29.450, Spherix Incorporated (SPEX) up $0.360 (+31.30%) higher to $1.510, and Ritter Pharmaceuticals Inc. (RTTR) up +$0.430 (+22.99%) higher to $2.300.

Alphabet Inc. (GOOGL) jumped to a record high during the trading session today (chart above). The company that has access to peoples’ searches is pushing its luck as it is showing technicals along several ceilings. It closed up +$14.65 (+1.82%) higher to $821.49.

Intel Corporation (INTC) initially retreated after beating estimates on PC doldrums. That was due to a disappointing fourth-quarter outlook disappointed markets as sales in Q4 are expected to miss estimates. The company is executing on restructuring which led to gross margins of 64.8% compared to the 63.0% that was expected. Shares jumped +$0.46 (+1.23%) higher to $37.75 before the bell.

Netflix Inc. (NFLX) had its biggest gain in over 3 years because its earnings beat after the bell yesterday. It soared after subscriber growth vanquished any slowdown fears.

The three biggest decliners today were: Ultrapetrol Ltd. (ULTR) down -$0.1643 (-65.98%) lower to $0.0847 after rising +39.89% in the previous session, Capstone Turbine Corp (CPST) down -$0.230 (-17.29%) lower to $1.100, and Moleculin Biotech Inc. (MBRX) down -$0.440 (-15.44%) lower to $2.410.

Yahoo! Inc. (YHOO) reported its earnings after the bell on Tuesday. Third quarter adjusted earnings per share came in at 20 cents (Vs. the 14 cents that had been estimated). Revenue for the quarter was $15.8 billion, compared to $15.6 billion forecasted, and saw an adjusted operating profit of $5.1 billion. Shares fell -$0.110 (-0.26%) lower to $41.680 before the close.

Robert Patyk has 15 years’ experience trading stocks, options, commodities, futures options, & currencies. At age 17 he won first place in an international stock trading competition. Robert predicted the market crash of 2008 two years early. He is a contrarian, top-down macro trader achieving high returns by studying geo-politics, fundamentals, and technical indicators.