Hate The Obvious
Getting a handle on the
underlying strength or weakness of the market is a matter of paying
close attention to:
- Individual stocks. Looking at the technical
and fundamental condition of the leaders and monitoring their performance
from day to day.
- Sector and groups. Where is the leadership
rotating to and from?
- Macroeconomics. Paying attention to Fed
policy and the phase of the economic cycle we’re in.
- Sentiment. Look for market turns to occur at
extremes in optimism and pessimism.
- Market dynamics. Follow the ticks, advances
and declines, and other measures of overall market health.
Why am I in 101 mode at this time? It’s just a
reminder that all too often traders pay undue attention to what indices are
doing. But the action in the Nasdaq, S&P 500 and Dow is a result of the
underlying all the above and more. On a daily basis, my colleagues tell you what
individual stocks they’re looking at and where the leading groups are. That
should be where you main focus is.
That said, I want to update you on my assessment
of the less important, but interesting action in the Nasdaq Index–from a big-picture
perspective. Yesterday,
I highlighted a few concerns in the patterns that might give us a pullback.
I said the following:
The Nasdaq Composite is hitting
an internal trendline that forms the midpoint between the top and bottom of a
downtrending channel. Also at this price level, we have the 50% retracement
off the Oct. 20, 2000, high and the January 3, 2001, low.
Today, the beginnings of a pullback
off this resistance level. Moreover, if you review a weekly chart, the setup
becomes even more compelling.
The pullback is occurring in
textbook fashion off the trading-range highs dating back to July through October
of 1999.
Now…I hate the obvious. The market
usually manages to dish out something entirely unexpected on “no brainer”
patterns such as these. So I have no bias favoring a test of the range lows.
Again, it’s a matter of looking at this day to day. Boring, unentertaining–but
practical.
Till Friday,