Saturday, February 15, 2014

COMPQ Nasdaq Weekly Chart New 13-Year High Upward-Sloping Channel Negative Divergence Potential M Top Price Extended

The Nasdaq is the first of the four major indexes (SPX, INDU, COMPQ and RUT) to take out the January highs. The Dow and Russell are lagging. The SPX is threatening now only a few points away form the 1851 all-time high. The Nasdaq is at new 13-year highs printing at 4251. The upward-sloping channel remains in place. The tag team stock market pump over the last year by the Fed and BOJ is astounding. One of the big, if not biggest game-changers was the BOJ shock and awe last spring that launched Japan and US markets, and most importantly saved European stocks and bonds. The bulls are maintaining this happiness and do not want the party to end.

The chart is printing a textbook M top, or double top. It will be interesting to see if the pattern follows through moving forward. All the indicators were negatively diverged, except for the MACD line, and overbot to end 2013 which created the smack down. The MACD line, however, wanted one more price high, and it received its wish yesterday.  Note how price is now at a higher high and how much weaker the MACD line is; neggie d. Can price continue higher even to the upper rail of the channel? Sure, especially if the BOJ announces more money printing plans early next week. The expectation, however, would be for a price top either now, or next week, perhaps a few days into the following week, as February ends and March begins. The majority of traders believe financials will lead markets higher and financials require a lot of technology power, thus, these two sectors are always wanting to move together.

The same recent question remains. Are traders buying financial and technology stocks since they see strong fundamentals, a strong global economy and nothing but blue skies ahead with a far higher stock market, or, are traders buying financial and technology stocks since they know these sectors should lead the way higher so they are trying to front-run everyone else, figuring they are smarter than the average bear, as Yogi would say, buying now and willing to wait for the markets to catch up? If it is the latter, what happens if the markets and economy do not move higher and stall? The retreat could be swift.

Technology typically peaks in Q4 and then in February traders start to sell out of the sector especially in the second and fourth weeks. Obviously they were not selling last week as seasonality dictates. In recent years it has been bullish year round for tech since the central banker easy money is simply flowing into the high-flying tech stocks and momo creates momo. Traders are now leveraged to the long side just like the 2000 and 2007 market tops. The volume has picked up this year so the wine is flowing like water; everyone is willing to buy and even wait a while if they have to for stocks to move higher since the Fed and BOJ have guaranteed that the stock market will move continuously higher forever. There is no reason to worry; the bulls are already drunk as skunks this weekend and are raising wine and beer glasses to toast Yellen and Kuroda, the wizards controlling the markets.

The chart above is nasty. Next week's candle will be very important. For the bulls to recover, they have to pull at least one of the indicators above the prior high. The steep negative slopes shown by the red lines illustrate that this would be a formidable task. Price remains far extended above the moving averages desperately needing a mean reversion. Price dropped and bounced off the 20-week MA but really needs to visit the 50-week, at a minimum, and if she starts dropping that far the 200-week MA will provide a further negative target. All indications are that this is an 'M' top finishing now printing the second peak. Some traders call these patterns a double-top; it's the same thing.

Projection is for price to top out in the days or couple weeks ahead and drop again, beginning a long multi-week and multi-month trek sideways to sideways lower through 2014. Tuesday will be important since traders are expecting the BOJ to provide good news after their 2-day meeting, with more easy money talk, beating the yen lower, dollar/yen higher, and pushing the stock market higher. This catalyst either creates the last upside candlestick for the top, or, the BOJ fails to deliver where the top may already be in. Price has no reason to move higher; the indicators are all negatively diverged showing that there is no longer any oomph available. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.