NASDAQ Tech Wreck 2.0?

Courtesy of John Nyaradi.

With last week’s dismal action in the Nasdaq index and tech sector, October could be another bad month for the Nasdaq.

Much of the headline news last week was focused on the 25th anniversary of “Black Monday,” October 19, 1987, when world markets crashed and the Dow Jones Industrial Average (NYSEARCA:DIA)) plunged 508 points or approximately 24% in one day.

Much has been written about whether or not Black Monday can happen again, and, of course it can, but on its anniversary this year, it’s more important to pay attention to what’s happening today, particularly what’s happening in the tech sector since tech tends to be a leader both up and down in today’s modern markets.

 On My ETF Radar

chart courtesy of StockCharts.com

In the chart of the Nasdaq Composite (NYSEARCA:QQQ) above, we can see how the index is in a significant downtrend, with declining momentum and has decisively broken its 50 day moving average. Next significant support lies in the 2900 level, approximately 3% from current levels.

chart courtesy of StockCharts.com

In this chart of the S&P 500 (NYSEARCA:SPY) we can see how the index has formed a triple top, which is generally seen as an ominous development in technical analysis, momentum is declining and Friday’s sell off ended right at the 50 day moving average.

chart courtesy of StockCharts.com

In the point and figure chart of the S&P 500 (NYSEARCA:SPY) we can see that the chart is on a “sell” signal with a downside price objective of  1380, some 3.7% from today’s levels.  A close below the blue, bullish support line at approximately 1390 would indicate the onset of a new bear  market according to point and figure methodology.

Add it all up, and the technical indicators are looking more and more bearish.

On a fundamental level, one must pay attention to the Nasdaq as it’s loaded with big names like Google (GOOG) Apple (AAPL) Microsoft (MSFT) Intel (INTC) and others.  Therefore, the index represents some of the strongest, leading edge companies operating in the technology sector which has become indispensable to the functioning of modern, developed economies.  Furthermore, Nasdaq and glamor names like Apple (AAPL) tend to attract the interest of big players in the hedge fund and institutional space, and if the big money is heading for the exits here, this development could portend rougher water ahead.

While October is typically the beginning of the “best six months of the year,” weak action in the Nasdaq sends a clear warning and any kind of a “Tech Wreck 2.0″ must be carefully observed. Read more in Wall Street Sector Selector Weekly Tech Report: Red Flags

ETF News You Can Really Use

Friday’s stock market action caught everyone’s attention as earnings continued on a weak note and questions continued to swirl around the “will they/won’t they” aspects of a formal request from Spain for a European Union bailout.

As we’ve said, Friday was the 25th anniversary of Black Monday and the markets celebrated with widespread declines that saw the Dow Jones Industrial Average (NYSEARCA:DIA) drop 1.5%, the S&P 500 (NYSEARCA:SPY) fall 1.66%, the Nasdaq 100 decline 2.4% and the Russell 2000 (NYSEARCA: shed 1.9%.

VIX, the CBOE S&P 500 Volatility Index, also known as the “fear index,” jumped 13.5% while gold declined 1.1% to $1722.90 and oil slipped 1.6% to $90.61/bbl. Read more in “VIX Breaks 16 with 13% Gain

For the week, the S&P 500 (NYSEARCA:SPY) eked out a gain of 0.3%, the Dow (NYSEARCA:DIA) was essentially flat with a gain of 0.1% and the Nasdaq (NYSEARCA:QQQ) fell 1.3%.

Economic news last week was mixed, as usual in recent weeks, with retail sales and housing starts better than expected and the Philadelphia Fed shooting up to 5.7 in October from the previous month’s -1.9.  On the negative side of things, the New York Empire Index improved to -6.2 in October from the previous reading of -10.4 but missed expectations and still remains mired in contraction territory.  China continues to “slow,” with a GDP reading of 7.4% which is the lowest in nearly four years.

Earnings continue to take the spotlight as GE and McDonald’s disappointed on Friday to join the likes of Google, Microsoft, IBM and Intel earlier in the week.  This week brings earnings news from more than 150 S&P 500 (NYSEARCA:SPY) companies including tech heavyweights Apple, Yahoo, Texas Instruments, Netflix, and Facebook.  Also big names like AT&T, Amazon, UPS, Caterpillar, Sprint/Nextel, United Technologies, Procter and Gamble and Boeing are due to report as the week wears on.

In the end, it will be all about Apple (NASDAQ:AAPL) as “One Bad Apple Can Spoil The Whole Bunch“

It will also be a big week for economic reports with new home sales, Markit PMI and the FOMC meeting and statement on Wednesday, weekly unemployment, durable goods pending home sales on Thursday and Q3 GDP and University of Michigan consumer sentiment on Friday.

Bottom line:  A big week ahead will determine where major indexes go from here.  Spain could be a help if it asks for a bailout, but all eyes will be on earnings, particularly Apple (AAPL) and the tech sector, for any hint that “Tech Wreck 2.0″ could be in the offing.

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