The Ugly Stick

That is what I'll call today's candle on the chart above.

Recently, following a big down day, the index has rallied. I would enjoy another 50 point down day. This up / down / up / down stuff will drive a man to drink.

Nasdaq Breaks Above Recent Range

Read about it here at Trading Goddess's blog.

Nasdaq Breaks Above Recent Range.

In other news, I took a body blow on BLUD today, and then had VDSI pour more salt in some wounds. I plan to post a recap of recent events, as well as some thoughts I'm having about trading, on Sunday.

X Marks The Spot

The Nasdaq put forward a very strong move today. Volume accompanied the move, the first time in several months that the index has seen good volume on a move up.

In my previous post here at Trading Goddess's, I suggested an area which the Nasdaq might find support. The index did not yet make it down to those levels. This shows a great deal of strength, though it is certainly possible the Nasdaq may dip from here and visit the 2600-2650 area.

In the chart above, the bottom line represents the uptrend established from the August low. This uptrend was firmly punched through on Friday, October 19th. The upper line is the resistance set from the October high.

This analysis shows the index at a critical moment. The Nasdaq managed to close just slightly above resistance (or right at it, depending on where you draw your line), and closed just below, (or right on) the uptrend line.

A strong showing over the next few days should put the Nasdaq above both lines, and will mean the recent pullback was just another buying opportunity. Failure to overcome the resistance line suggests further retracement is likely.

Basically, if you are short, this is where you stick it to the bulls. If you are long, this is where you ram it to the bears.

The next few days should be very entertaining as both camps fight for dominance.

Where Might The Nasdaq Find Support?

Read my latest post over at Trading Goddess's place.

Where Might the Nasdaq Find Support?

Nasdaq Index to Go Shanghai?

Making guesses about what an index will do in the short term is foolhardy. However, because I really do not care about being right, and am truly more concerned about what is probable, I will undertake the foolhardy task.

As noted in the chart, I will be a buyer or will add to existing positions should the Nasdaq pull back to the area of 2650s. If it doesn't pull back, I will still be a buyer, but at much higher levels...yuk yuk. I am expecting some weakness in the short-term due to options expiration, summer doldrums, and digesting of recent gains.

Based on the chart, should the Nasdaq continue up from here, it seems it might go Shanghai. I find a pullback to be more probable this week.

Sell In May and Go Away

My math shows that from the open on May 1st to today's close, the Nasdaq Composite has returned 2.5%. With one more day to go in May and the index closing at the high-of-day, its safe to say that selling this May would have really been a big mistake. Record levels of shorts tell me that many have made this mistake. As the Nasdaq needs only 8 points to trade in record territory, it is possible that the index will test the recent high very soon. Will new highs prompt the shorts to begin unwinding positions? I'm also wondering if the shorts are holding out for the summertime doldrums and the associated low volume to provide a better environment for unwinding some bets.

As for now, it seems the market wants to keep going up. I included this chart of the Nasdaq to illustrate two points. The first point is that almost all of my positions made candles today that look exactly like today's candle on the Nasdaq. The second point is that the only element that has me a tad concerned is the lack of volume in the Nasdaq today.

The exception to all today's pretty candles,VRTB, made a very ugly candle. That position will probably be eliminated shortly, as I am over-diversified, and should be reducing "diversity-exposure" (I just made that up. I hope what I mean is clear. Probably not.) and using the extra cash to add to winners. Everything else looks great, with PFWD breaking out, MVIS going parabolic, ARWR winding up, and even my laggard CLWR closing green. Oh, and I bought 100 HANS today @ $39.76, even though I hate the stock. So much for reducing diversity-exposure.

I have to admit that I'm ready for the stock gods to rip my new gains from the clutches of my hot and sweaty digits. Also, I'm not getting anything done at work. I'm going to quit this post now as not to jinx things.

If you are searching for more ideas to trade, I found Stocktiger tonight, and he has some decent setups in his video charts.

Nasdaq Update

I recent post at Downtown Trader reminded me that I needed to take a look at the Nasdaq chart.

It is insane that I haven't really studied the chart in the last week or so. It was like coming back to a good book.

Surprisingly, the composite index closed above resistance today. Volume was not all that great, and the divergence between price and volume is in my estimation one of the most reliable indicators. However, I am pleasantly surprised at the strength the index is showing while hanging out so high above the 20 day moving average. If the companies reporting first in the new earnings season can keep from disappointing, I feel it is conceivable that the Nasdaq trades sideways for a bit, which would allow the moving averages to catch up without some serious retracement days.

Nasdaq- Still Holding the 50-day

Looking at the chart, the Stochs are giving a clear sell signal, and the MACD looks like it might have one more uptick left before consolidating. The upper Bollinger Band is coming down hard and is likely to provide resistance to any upside move. The 20 day moving average is down at ~2400. Volume is still weak.

So what does all this mean? I believe we must continue consolidating here to allow the overbought condition to work itself off. I continue to see support around 2430, but would not be surprised to see a brief touch upon 2400.

All that being said, the Nasdaq is holding its 50 day average, leading me to be bullish.

And here is one to watch. If you follow this blog, you know that AOI has been a favorite of mine for several months. The chart shows it is forming a bullish pennant. Volume has been strong for the entire move, leading me to believe there is more move to come.

Getting Perspective on Future Nasdaq Performance

I’ve been experimenting with Excel in an effort to start wrapping my mind around how to program a system to backtest ideas. Specifically, I’ve been looking at the history of momentum in the QQQQ, not so much to provide trading opportunities, rather, to give some guidance as to what one might expect after a given market event.

After the markets begin to correct in February, I began waiting for a high-percentage gain day which might mark a bottom to the correction. After making a double-bottom on March 14, the Nasdaq Composite followed-through 5 days later on March 21st, closing higher than 1.9% from the previous close.

What does a market event such as a close >1.9% the previous day’s close portend for near-term market momentum? Using the QQQQ to track the Nasdaq Composite, I’m hoping to gain some insight as to what the next 2 weeks might hold for the Comp. and ultimately for my portfolio as it is heavily weighted in technology.

Sample Data: QQQQ – October 10, 2002 to March 23, 2007.

Starting equity for the sample period was $1o,ooo. The data in the table above shows that time is on the side of the longs after the QQQQ closes >1.9% the previous close. The green numbers represent the best results for each category. On average, the QQQQ has closed ~0.8% higher ten days after the >1.9% close.

This test does not really generate a killer strategy, but that was not the point. As I go into next week 103% net long, it is helpful to have some assurances as to where the market might head. A Nasdaq close up .797% 10 days later from its March 21st close leaves the index at 2475.49 on April 4th. After my recent buying spree it is reasurring to know that a gain of >1.9% the previous close usually leads to a continuation of momentum over the next 10 days.

The Nasdaq Follows Through

See a previous post of mine about the Follow Through Day here.


I have to say that I'm really suprised at how quickly the markets have righted themselves. I have surmised that Blue Tuesday and the subsequent days' action was so shocking that the sentiment changed to contrarian levels of bearishness much more quickly than in the past. I believe the extreme bearishness and the resulting record level of puts and short bets that were made effectively drained the firepower of the bears in a very short time. High levels of bearishness and record levels of "bear bets" could only mean that the sellers had exhausted all resources, hence any news that is not negative is good enough to cause a rally.

The low relative volume that has accompanied the double bottom and today's follow through move suggest to me that the bears have significant positions yet to be unwinded. When they will be spurred to unwind these bets is anyone's guess. The chart suggests that a gap-fill is a given, but I expect the Nasdaq to encounter serious resistance at 2500.

As noted on the chart, the Fibonacci lines have been uncanny in their ability to mark areas of support and resistance. I see no reason why they will not continue to do so. The 2433 area will likely provide support tomorrow should some profit-taking and shorting occur.

The fact that the Nasdaq has regained 2/3rds of its drop from the previous 52 week high and successfully followed-through does not mean that traders should let down their guards. There are still significant questions as to the strength of the economy, the sub-prime debacle is still in its infancy, and inflationary risks are still a threat. The amount of short sales and puts left in the market may be enough to push the Nasdaq to new highs sooner than most expect, but the trepidation that exists regarding the economic front may just provide enough of a braking effect to preclude the market from getting ahead of itself. Ultimately it will be better for the bulls if they can avoid creating an overbought situation over the next few weeks.

Nasdaq Again Meets Resistance at 2400

I mentioned earlier today I wanted the Nasdaq to close strong and on good volume. It did close strong, but volume was anemic. Again its advance was halted at 2400. If you choose to use price and volume as your primary indicator, then you cannot trust this rally.