There are numerous cracks and red flags to note on this index across most time frames. Starting with the 60 min charts we can see that we lost trend line support. I expect some sort of back-test to perhaps 8750 next week with the oscillators approaching over sold territory. Looking at the MACD, I expect a decent price move before the holidays. It is getting extremely tight and its high and lows are getting narrower. Potential levels of support are as follows: we have minor support at 8400 with perhaps more significant support coming in at just below 8200. I believe 8200 is a more realistic downside projection. However, should that give way there isn't much in the way of retesting our November lows.
The daily chart looks more ominous. So far this rally has been capped by the 50 EMA. Textbook bear market action. In addition to losing short term trend line support, we also lost the 20 EMA support. As far as the oscillators and indicators go, we have the RSI hovering around that 50 level. That is a red flag for sure as it is usually considered over bought territory in a bear market. In addition to that, we have the MACD recycled back to the zero line and looking heavy. Volume has remained quite light during this rally, and we have the stochastics making a bearish cross out of over bought territory with negative divergences to boot. Of course the only thing that matters is price. I'd personally like to see if that 8200 support would try to contain this move. If not, we all know what that means. If so, it would signal to me that perhaps we remain locked in a narrow and frustrating range before the next shoe drops. I post charts pulicly on stockcharts.com. The link is http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2899092
Sunday, December 21, 2008
Saturday, December 20, 2008
Nasdaq Composite 12/20/08
Things are getting extremely tight on the shorter term time frames and daily chart. Starting with the 60 minute chart, there is an ascending triangle setting up and getting extremely tight. This should find resolution early next week. We continue to encounter resistance at the 1600 level, with trend line support around 1550. The oscillators have unwound sufficiently to allow for a breach of that 1600 level, but also have plenty of room to fall further. The daily chart is not so optimistic of a strong rally.
On the daily chart there are numerous red flags developing. We have a bearish flag/rising wedge developing right beneath our 50 EMA. This suggests a failure should be expected in short order as is common in bear markets around our 50 EMAs. Volume has been pretty light on this move up with an increase on Friday, a day in which there were net sellers. Looking at the oscillators, we can see that the RSI has unwound to the 50 region, another area where bear market rallies die. The MACD has unwound considerably off the bottom and is starting to flatten out here as it approaches the zero line. The zero line is usually the line in the sand for bear markets. Conversely the zero line also acts like the line in the sand during bull markets, but lends support. Lastly, we have negative divergence on the stochastics as it looks to leave overbought territory. 1600 remains stiff resistance with the 50 EMA not far above at 1630. 20 EMA remains support at 1537, after which there is not much support until 1400. All of this points to a high risk-reward profile on the short side with stops not far above the 50 EMA. My first target for this move would be 1400, 2nd target the November lows.
I hesitate to make the call for significantly lower lows due to the compressed nature of the weekly and monthly charts. They are still deeply oversold. If anything, I believe they are saying expect choppy range-bound markets in the coming months.
I post charts publicly on stockcharts.com under the following link: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2899092
On the daily chart there are numerous red flags developing. We have a bearish flag/rising wedge developing right beneath our 50 EMA. This suggests a failure should be expected in short order as is common in bear markets around our 50 EMAs. Volume has been pretty light on this move up with an increase on Friday, a day in which there were net sellers. Looking at the oscillators, we can see that the RSI has unwound to the 50 region, another area where bear market rallies die. The MACD has unwound considerably off the bottom and is starting to flatten out here as it approaches the zero line. The zero line is usually the line in the sand for bear markets. Conversely the zero line also acts like the line in the sand during bull markets, but lends support. Lastly, we have negative divergence on the stochastics as it looks to leave overbought territory. 1600 remains stiff resistance with the 50 EMA not far above at 1630. 20 EMA remains support at 1537, after which there is not much support until 1400. All of this points to a high risk-reward profile on the short side with stops not far above the 50 EMA. My first target for this move would be 1400, 2nd target the November lows.
I hesitate to make the call for significantly lower lows due to the compressed nature of the weekly and monthly charts. They are still deeply oversold. If anything, I believe they are saying expect choppy range-bound markets in the coming months.
I post charts publicly on stockcharts.com under the following link: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2899092
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