Dow, Nasdaq Still Moving Apart<<On the downside, the worst case tomorrow is 2817 and for Friday, 2519. We derive these numbers from putting the crosshairs where the bar will be placed once the data comes in.
For the optimists, the upside is 3620 tomorrow and 3385 on Friday. These are the levels that would have to be broken before you could honestly say the Nasdaq is no longer in a downtrend. Meanwhile, the 200-day moving average (red line) has now been breached, again. >>
By Barbara Rockefeller
Columnist
04/25/2000 7:13 AM
A satisfactory opening to the week for the Dow, if not for the Nasdaq (see below for that sad story). It was a little scary for a while, but last Friday's "engulfing bull" came through and gave us a close on Monday just over the apex of an upward tilted triangle formation.
In the top window, we show a bizarre stochastic oscillator. Stochastics are usually at their best in a consolidating market. In a rising trend, prices tend to cuddle around the highs. And in a falling trend, they hold around the lows. By identifying which end of the range the current price is tending to be cozy with, the stochastic tells you whether to buy or sell.
The problem with stochastics is that they are so darned jumpy. Within a two or three-month trend, you can get dozens of crossovers. It can get confusing. When you have a minor upward correction in a major downtrend, you may exit only to be chasing the price downward again trying to find a good short re-entry level. To add insult to injury, half the time you had a downward gap, too. Sophisticated short-term traders use the stochastic?with very tight stops.
If you slow the stochastic indicator, however, you can get a less jumpy picture. It's then too slow to use for timing short-term entries and exits, but it retains the ability to identify whether prices are closer to the highs or closer to the lows.
In the Dow, this strange stochastic got you in on February 28 and out on March 30. Not perfect by any means, but with a relatively high probability of being correct. It has just signaled a re-entry on Monday, April 24. This could be reversed?there are quite a few one-day errors?but it's awfully nice and cause for hope.
When you have to add more space at the bottom of the chart, you know you're in a serious downtrend. If so, it will be the fifth week for the Nasdaq. As we wrote last week, this is a "sloppy channel," where the basis for support and resistance is doubtful and has yet to be tested. On the downside, the worst case tomorrow is 2817 and for Friday, 2519. We derive these numbers from putting the crosshairs where the bar will be placed once the data comes in.
For the optimists, the upside is 3620 tomorrow and 3385 on Friday. These are the levels that would have to be broken before you could honestly say the Nasdaq is no longer in a downtrend. Meanwhile, the 200-day moving average (red line) has now been breached, again.
We also have at least two distinct candlestick patterns. First, of course, is the falling window, otherwise known as an opening gap. People came back from a three-day holiday determined to sell. The Microsoft situation may have contaminated the crime scene, but declining issues were twice advancing issues, indicating a fairly broad distaste for the market's stocks. A falling window is usually followed by more declines.
Monday's candlestick is also a hammer, with a very small real body (representing the difference between the open and close) and a long lower shadow (the line beneath the body, representing the day's low). We last had one in the Nasdaq on April 4, and it fulfilled its reputation then by signaling a bullish reversal after a downtrend. That time the upward move lasted four days. Does the hammer offset the gap? It remains to be seen. They both are very short-term indicators.
The Chande momentum oscillator in the top window is as low as it has been in the past 1000 days. As an oscillator, it is bounded by +100 and -100, so technically it is only about half as bad as it could get, at -46. In practice, +/- 50 seems to be the most common extreme, although last November and again in January the Nasdaq had plus readings in the 70's. The Chande momentum oscillator is a form of relative strength, so when we see it turn around and point back up, we will have genuine cause for optimism.
Both the channel and Chande are telling us to stay away, even if there is a chance of a small temporary improvement during the week.
Data courtesy of Reuters DataLink.
Barbara Rockefeller is president of Rockefeller Treasury Services, an independent research firm specializing in foreign exchange forecasting. Rockefeller has more than twenty years of financial institution experience in all aspects of foreign exchange, including trading, fundamental analysis, technical analysis, and risk management. Her daily column delivers a technician's take on the markets.
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