Post by TradingForGod on Aug 19, 2004 8:32:47 GMT -5
Hi everyone,
Today begins our ongoing discussion of real markets in semi-real time. Again, let me state that the analysis and opinions expressed here are my own. They are provided for your information only. Trade wisely.
We’re going to look at the Nasdaq index today. I am going to reference most, if not all, of the indicators and patterns discussed in the “basics” series. If something doesn’t make sense here, please go back and read those topics. If you still have a question, please feel free to ask.
I have shown the weekly chart below. It’s quite “busy” but it contains a lot of information. I’ll try to go over it thoroughly. The Nasdaq bottomed in late 2002 and then rallied straight up thought the end of January. This rally slightly exceeded the minor bounce high back in Jan’02, and this caused some people to think that the market was really getting ready for a big push higher. However, each successive high came with a bigger and bigger momentum divergence, which as we discussed yesterday warned of an impending reversal. By late Jan the market had just run out of steam. Notice how the rally up from the lows fit the Elliott 5-wave pattern for an impulsive move. I have highlighted the swings in yellow.
Since the peak, the Nasdaq has fallen in an ABC corrective pattern, also highlighted in yellow. The “B” wave was very choppy and irregular, which isn’t uncommon. The A and C waves were almost exactly equal in length. The low last week touched support at the uptrend line off the ’02 and ’03 lows and hit the 38% (Fibonacci) retracement of the whole rally. Those important supports were within just a few points of each other. It’s not surprising that the Nasdaq held there and reversed. Shorts from above and dip buyers all stepped in at the same time.
The big question now is…was that it for the sell-off? Unfortunately, it’s too early to say for sure. All we can say now is that the sell off stopped where it needed to in order to prevent a much bigger drop. Here are some things to consider. First, the Nasdaq has only fallen to the MINIMUM retracement level normally seen in a correction, 38%. It is more normal to see corrections of 50% of even 62% unless the market is really bullish. For the Nasdaq those levels are 1630 and 1507 respectively. Weekly momentum is still very negative, and there is no sign of a momentum divergence on the downside yet. Markets can reverse without that though. MA structure is very negative as well with the 7-week MA (orange line) below the 20-week MA (yellow line) which is below the 40-week MA (blue line). The ADX trend indicator is rising and is above 20 right now indicating that a weekly DOWN trend is trying to get organized. About the only really positive thing here is that the weekly stochastics are trying to turn up from very oversold levels. That should be good for at least a decent corrective bounce, even if prices ultimately fall again.
Putting it all together, it looks to me like the Nasdaq is getting ready for AT LEAST a bounce to 1905, the 38% (Fibonacci) retracement of the sell off from late January. The rally could wind up being much larger than that. That’s the minimum expectation. The 62% retracement of the sell-off is up at 1999. A close above there more than likely sets the stage for a much larger, longer term rally that could ultimately drive the Nasdaq a 1000 points higher, similar to the rally that started in 2002. How will I know this point-of –view is wrong? If the Nasdaq closes below last week's low, it STRONGLY suggests that the sell-off is going to push another 120-240 points lower. That sounds terrible, I know, but remember that would only make this a “normal” pull-back from the highs. That said, you probably wouldn’t want to be fully invested if it happens.
How the market performs on this push higher could well determine the course of price activity for months to come. Watch the key numbers shown above for clues.
Next time, we’ll look at the crude oil market since it’s been such a big concern to everyone with respect to the impact on the economy.
God bless.
TFG
Today begins our ongoing discussion of real markets in semi-real time. Again, let me state that the analysis and opinions expressed here are my own. They are provided for your information only. Trade wisely.
We’re going to look at the Nasdaq index today. I am going to reference most, if not all, of the indicators and patterns discussed in the “basics” series. If something doesn’t make sense here, please go back and read those topics. If you still have a question, please feel free to ask.
I have shown the weekly chart below. It’s quite “busy” but it contains a lot of information. I’ll try to go over it thoroughly. The Nasdaq bottomed in late 2002 and then rallied straight up thought the end of January. This rally slightly exceeded the minor bounce high back in Jan’02, and this caused some people to think that the market was really getting ready for a big push higher. However, each successive high came with a bigger and bigger momentum divergence, which as we discussed yesterday warned of an impending reversal. By late Jan the market had just run out of steam. Notice how the rally up from the lows fit the Elliott 5-wave pattern for an impulsive move. I have highlighted the swings in yellow.
Since the peak, the Nasdaq has fallen in an ABC corrective pattern, also highlighted in yellow. The “B” wave was very choppy and irregular, which isn’t uncommon. The A and C waves were almost exactly equal in length. The low last week touched support at the uptrend line off the ’02 and ’03 lows and hit the 38% (Fibonacci) retracement of the whole rally. Those important supports were within just a few points of each other. It’s not surprising that the Nasdaq held there and reversed. Shorts from above and dip buyers all stepped in at the same time.
The big question now is…was that it for the sell-off? Unfortunately, it’s too early to say for sure. All we can say now is that the sell off stopped where it needed to in order to prevent a much bigger drop. Here are some things to consider. First, the Nasdaq has only fallen to the MINIMUM retracement level normally seen in a correction, 38%. It is more normal to see corrections of 50% of even 62% unless the market is really bullish. For the Nasdaq those levels are 1630 and 1507 respectively. Weekly momentum is still very negative, and there is no sign of a momentum divergence on the downside yet. Markets can reverse without that though. MA structure is very negative as well with the 7-week MA (orange line) below the 20-week MA (yellow line) which is below the 40-week MA (blue line). The ADX trend indicator is rising and is above 20 right now indicating that a weekly DOWN trend is trying to get organized. About the only really positive thing here is that the weekly stochastics are trying to turn up from very oversold levels. That should be good for at least a decent corrective bounce, even if prices ultimately fall again.
Putting it all together, it looks to me like the Nasdaq is getting ready for AT LEAST a bounce to 1905, the 38% (Fibonacci) retracement of the sell off from late January. The rally could wind up being much larger than that. That’s the minimum expectation. The 62% retracement of the sell-off is up at 1999. A close above there more than likely sets the stage for a much larger, longer term rally that could ultimately drive the Nasdaq a 1000 points higher, similar to the rally that started in 2002. How will I know this point-of –view is wrong? If the Nasdaq closes below last week's low, it STRONGLY suggests that the sell-off is going to push another 120-240 points lower. That sounds terrible, I know, but remember that would only make this a “normal” pull-back from the highs. That said, you probably wouldn’t want to be fully invested if it happens.
How the market performs on this push higher could well determine the course of price activity for months to come. Watch the key numbers shown above for clues.
Next time, we’ll look at the crude oil market since it’s been such a big concern to everyone with respect to the impact on the economy.
God bless.
TFG
