Nasdaq Index Pares Early Gains as Tech Sell-Off Overshadows Surge in Oil

The Nasdaq Composite Index closed at 5,323.68, down -56.24 (-1.05%) lower from its previous close of 5,379.92. Today, the index traded between 5,323.68 and 5,393.15 before settling. The 52-week range presently sits at 4,209.76 and 5,403.86.

The Nasdaq’s volume of 581 million shares trading hands today was much higher than Tuesday’s 440 million. There were 984 (34%) issues that advanced while 1,783 (61%) declined (139 unchanged). Of those, 314 companies recorded record new highs while 108 made new lows.

Today, the Nasdaq opened +11.43 (+0.21%) higher at 5,391.35 and managed to spike even higher within the first 15 minutes to form the high for the session. That is when things started to decline steadily for the rest of the day, allowing the index to close right at the session low:

NASDAQ - Recap and Outlook for Nov 30 2016 - ONE

The intra-day chart (above) shows that the pessimism near the end of the Nasdaq Composite Index’s previous session persisted into today’s trading.

Despite an initial bump higher, stocks kept selling off all day long. You can see that the declines paused, temporarily, near the long-term dotted (purple) trendline before resuming their retreat.

Later in the day, the index found another support at a different long-term trendline (expressed by the dotted, red line).

Depending on where you begin to draw them, three out of the four blue trendlines, based upon the MACD peaks, suggests that the index fell more than it should have today. Sometimes the more recent lines will impact future moves while, at other times, the longer-term lines prove to be more meaningful.

While all three of the lower indicators currently have negative trajectories, the Stochastics and RSI both find themselves in over-sold territory. As such, a slight gain is expected for the index but this could easily be overshadowed by the indicators on the longer-term charts.

NASDAQ - Recap and Outlook for Nov 30 2016 - TWO

Taking a look at a 1-month/30-min. candle chart of the Nasdaq Composite Index (above) we can see that the bulls are going to have their work cut out for them going forward.

We have now crossed below the dotted (purple) line which typically acts as a magnet over the long-term. While I believe that the index could easily continue to hug this line in the future, some traders may take this crossing below the line as a selling signal.

That could, in turn, cause even more people to sell and trigger additional declines. Earlier on this chart, we can see that the index is able to drift quite a distance away from this long-term trendline even while its powers continue to drive prices.

Despite the Stochastics and RSI indicators both trading at over-sold levels, meaning that they are due for a rally next, I would be so bold as to predict that I would be very surprised if we do not touch the upper red line of resistance of the sideways channel. This line is presently acting as a support until we can break below that level.

According to the blue trendlines, which are based upon the MACD peaks, we should even retest the lower support of that sideways channel. That is only if we look at the recent blue trendlines.

If we go back further, the blue lines would suggest that the Nasdaq could easily fall to even lower levels (see black arrows). Barring any significant bullish news, I am confident that the index could soon find itself somewhere within the 5,000 to 5,200 range in the near future despite this being a seasonally strong time of year.

For the trailing 1-month period, the Nasdaq Composite Index has made a +2.59% return. Going back a year, it has yielded +4.21%. It was the significant under-performer of all three major U.S. averages today.

The Dow Jones Industrial Average barely changed +1.98 (+0.01%) higher to 19,123.58 while the S&P 500 retreated -5.85 (-0.27%) lower to 2,198.81 (falling below the crucial 2,200 level).

8 out of the 11 major industry groups of the S&P 500 ended the day lower. The utilities sector was the biggest drag on U.S. equities, followed by telecoms and consumer staples. To the upside, Energy shares gained the most, followed by financials and materials.

Yesterday’s weighing on energy shares due to a drop in oil was reversed today as oil prices had their best day since February. Within the oil sector itself, refiners and marketers were the only portion that didn’t gain sharply.

One contributing factor why oil prices closed at a 1-month high is that the United Nations (UN) tightened sanctions on North Korea because of their fifth (and largest) missile test in September. With the UN targeting their hard currency reserves, which cuts coal exports by at least -62%, instability in the region escalated.

However, the most likely factor affecting oil prices today was due to OPEC striking a deal to reduce oil output with Russia. This represents the first production cut in 8 years, which is why you can now expect a sector rotation out of defensive stocks and into energy equities.

The approx. +9% jump in oil (to over $49 per barrel) was even more impressive because the U.S. dollar was also higher (surpassing its January high). Investors are now pricing in a faster pace of tightening in 2017. The dollar rally was partially fueled by yield premiums. U.S. bonds had their worst month since 2009 as yields soared in November.

Crude Oil Inventories fell by -0.884 million barrels (compared to the expected gain of 0.636M) while the Pending Home Sales (MoM) grew 0.1% in October, compared to the 0.2% that had been forecasted (and the previous 1.5% was revised downward to 1.4%).

The ADP Nonfarm Employment Change in November came in at 216K (better than the 165K that was expected) but the previous 147K was revised lower to 119K.

If you look at the Labour Differential, you will see that it has been steadily growing due to a good job market. In fact, it is at its highest level since the Financial Crisis of 2008, which means that there is a chance that the unemployment rate could still drop further. This will be announced in Friday’s jobs report.

Everything is coming together for a rate hike in December by the FOMC. Tomorrow’s ISM Manufacturing PMI for November, expected to be 52.3 (previously 52.9) will provide greater evidence of this. Also out tomorrow, we will get the U.S. November Auto Sales and Manufacturing PMI out of China.

NASDAQ - Recap and Outlook for Nov 30 2016 - THREE

The three biggest gainers on the Nasdaq today were: Memorial Production Partners LP (MEMP) up +$0.205 (+65.02%) higher to $0.520, Superconductor Technologies Inc. (SCON) up +$0.980 (+49.00%) higher to $2.980, and Globus Maritime Ltd. (GLBS) up +$1.210 (+21.72%) higher to $6.780 after already rising +46.19% higher in the previous session.

The three biggest decliners today were: Arrowhead Pharmaceuticals Inc. (ARWR) down -$2.950 (-67.20%) lower to $1.440, Cerecor Inc. (CERC) down -$2.640 (-55.93%) lower to $2.080, and Towerstream Corp. (TWER) down -$0.1265 (-36.51%) lower to $0.2200

Acasti Pharma Inc. (ACST) tumbled -$0.400 (-22.22%) lower to $1.400 after it rose +33.33% in its prior session. Earlier this week, the firm announced that Linda O’Keefe is the new Chief Financial Officer. You can see on the chart (above) that the stock has seen many break-outs in the past year but usually trades within a range.

Netflix Inc. (NFLX) is allowing subscribers to binge watch their shows offline. The stock retreated -$0.470 (-0.40%) lower to $117.04 in today’s session.

Facebook Inc. (FB) is dealing with significant risk surrounding its fake news issue. Shares of the company declined by -$2.450 (-2.03%) lower to $118.42 today.

Among some of the other big tech shares that weighed on the Nasdaq today, Inc. (AMZN) lost -$11.950 (-1.57%) lower to $750.570 and Alphabet Inc. (GOOGL) fell -$13.560 (-1.72%) lower to $775.880.

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.