Until this morning, the bearishness we saw late last week was solidifying. But with
U.S. troops on the verge of entering Baghdad, domestic spirits were lifted, and so
were stocks.
The Nasdaq Composite chart is very bullish, for multiple reasons. First, we have a
wide gap from yesterday?s close to today?s open. These gaps show that investors are
willing to buy at any price, and that willingness to buy is what drives markets
higher.
Second, we gapped over the 10 and 20 day exponential moving average lines. Both of
these lines are key support and resistance lines, and to skip over them completely
indicates technical strength.
And finally, this gap pattern can be considered an ?island reversal?, which often
confirms the new price direction. To form this ?island?, there must be two opposing
gaps. In this case, we got the exhaustion gap on Monday, and then the reversal gap
today. The result was two isolated price bars (from Monday and Tuesday). With no
trades leading into or out of that ?island?, the likelihood is high that this
reversal is not a fake out.
We?re also getting some confirming support from the pending MACD crossover, and the
DMI crossover today. While technically bullish, these signals are not as solid yet as
we?d like them to be.
Support is now at the 10 and 20 EMA lines, or 1370 and 1360, respectively. Overhead
resistance is at 1400 and 1420.
Daily Chart of the Nasdaq Composite (COMPX)
OEX COMMENTARY
The OEX looks strong too, even without an island reversal chart. Being s lower
moving, less volatile index, and island formation is pretty unlikely for the S&P 100.
However, the index did gap above the 20 day EMA line, and then crossed over the 10
day EMA line after the open.
We do have another concern based on the OEX chart that is not visible on the Nasdaq
chart ? the 200 day simple moving average. As regular readers know, this 200 day line
has been a problem to get across. In fact, the only close we made above it two
Friday?s ago set up a major pullback the following week.
We?re also approaching a diagonal resistance line that has been drawn since December.
This resistance line is perfectly straight (see chart), so encountering some
turbulence there would not be a surprise.
All the same, we have to base a forecast on what the market is doing, rather than
what it should be doing. And as of right now, it?s headed higher, and has confirmed
the uptrend by passing critical technical levels. Therefore, we?re bullish.
Support for the OEX is at 435, and again at 428. We?re placing resistance at the 200
day line, or 448. Set another resistance point at 453, where the index will intercept
the upper diagonal resistance line.
Daily Chart of the S&P 100 (OEX)
Bottom Line:
We?re back to a bullish bias now, based on current charts. However, we fully realize
that this market reverses quickly. Go with the trend rather than against it, BUT,
keep a close eye on the support and resistance levels mentioned above. As we?ve been
cautioning in recent weeks, there are plenty of catalysts out there that can surprise
investors, much like today. Also keep a close eye on how markets are responding to
the Iraqi conflict ? that seems to be the major market driver.
A word of caution: these explosive days are sometimes followed by explosive
downturns, due to profit-taking. This is why we recommend using stops and strict
entries until the uptrend has a little more confirmation.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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