Market Commentary for Friday, February 18, 2005

The sharp 26.09-point Nasdaq decline on Thursday was primarily technical in nature, more the result of a petering out of momentum after last Friday's sharp gain than the result of economic or business fundamentals. People were still on Greenspan Watch, which keeps a lot of people out of the market.

The good news is that Nasdaq fell without any significant attempt to rally (only 9 points above the mid-morning low), what is known as a "throw in the towel" sell-off, and suggesting a near-term selling capitulation. The reason this is good news is that a lot of naive speculators may have gotten sucked into the sell-off, but will be excellent candidates for a significant short-covering rally in the coming days since those amateurs don't have a very high tolerance for pain (losses as the market snaps back).

The economic data was mixed, hinting at an economy that will be continuing to recover, but still not fully up to normal cruising speed.

Nasdaq trading volume was moderate, almost heavy (1.95 billion shares), and breadth was strongly negative, with 2.11 losers for each gainer. This was almost a heavy sell-off, but volume was still a little light.

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