Something From Nothing

Friday, I showed you a chart of a Countrywide
Credit–a setup where the ingredients were in place for constructive action.

Monday, the stock followed through better
than I had anticipated
with a 3 1/2 point gain on more than 200% of the average
daily volume off Friday’s breakout. The stock’s rise is beginning to look
parabolic, and from here you will likely see a range or pullback begin to form.
Once that happens, I’ll be watching the volume. If the stock dips a little on
reduced volume, the stage may be set for further gains.

In the bigger picture, the Nasdaq is following through on its pullback from
resistance off the top of its trading range, as I had pointed out it might in my
Chart
of the Day” on Dec. 11, 2000
. At that time, I said that the Nasdaq was
hitting potential resistance at the top of a three-month trend channel, its 50%
retracement (Nov. high and Nov. low) and its old broken support from early Nov.

Here again, I will merely state what conventional wisdom would
tend to conclude. No magical patterns or wave counts. The Naz is pulling back to
the bottom of its trading range. Besides the low we established in late Nov.
2000, these range lows were an important component in the base that formed
between July and Oct. 1999–a base from which the Nasdaq launched into the
bubble hall of fame.

Right about now, traders and investors are tired. They’ve gotten
beaten up. They were supposed to get:

  • a post-October rally…and got nothing

  • a post-election rally…and got nothing

  • a post-Bush victory rally…and got nothing

  • a Santa Claus rally…and they got nothing…so far

And they probably can’t take it anymore.

Hmm. Bottom of a range. Disgruntled traders. To me it smells
like the market will once again tend to befuddle as many people as possible by
rallying.

Eddie