As predicted over the past two weeks, the NASDAQ has reversed to the upside, and this momentum should,
after some sell waves, take the NASDAQ up into the higher 4,000 level. Not every stock will fare well,
however. Non-tech stocks will likely be forgotten in favor of the new tech gold rush.
Toronto, ONT, June 2 /SHfn/ -- As a result of Friday's trading, the NASDAQ has recorded the highest ALR Oscillator readings
ever. The readings are higher than those that occurred after significant declines in 1987 and 1998.
This indicates that the buy/sell force is back well on the side of buyers. It should also be able to carry this momentum well into the
high 4,000 level, if not to new highs. The key will be the kind of sell strength readings we are going to see over the next few cycles.
Obviously, this surge has been driven to a large extent by recent inflation friendly economic numbers. But if buying is driven to a
frenzy, such as earlier in the year, then the index could come down even harder if economic numbers are poor.
For now, I am betting that the sell pressure will be muted, much like it was after the market roared ahead in 1998 after a 30%+
correction. Over the next week, I will be watching the intra-day patterns for a bit of breakdown. But if this up wave truly has the type
of strength we have seen over the past few days, then pull backs are going to be small in both duration and % retracement.
For the coming week, look for the market to slow and create some buying opportunities. Right now, my initial target on a down wave
is 3,450-3,500. But we may not reach these levels. So any drop of 125+ points should be watched for an entry point.
Beware The Rotation
The DOW and the S&P had pretty good days today. But they have had a lot better, and their short term strength readings have been
a lot better as well. One factor that helped sink the techs a few months ago was the rotation into non-tech sectors like industrials
and financials. This situation may begin to unwind and, in fact, I would make the argument that it had been doing so for past few
weeks. The ALR readings for the S&P500 and the DOW are no where near their all time highs, unlike the NASDAQ and the Russell
2000. Tech investors are manic again and perhaps the correction has allowed those who missed out last time to jump on board.
The charts below point out the ordinary ALR readings for the DOW and S&P. But notice that the Russell has record values, too.
Why buy lottery tickets when you can go to Vegas? All the markets reversed their short term swing cycle to the upside but I do not
believe that all groups are going for the ride. If investors continue this ferocious rotation back into tech stocks, then they will be doing
so at the expense of other non-tech sectors. They have to. It has been what has kept this great bull going for so long.
This rotation, however, may create a significant head wind for the NASDAQ and Russell 2000. Time will tell. But until selling
pressure convinces us that the NASDAQ is again heading south, this should be the buying opportunity of the year.
Dave Poxon, formerly a proprietary stock trader is now president of an institutional research firm that provides proprietary technical
research services to institutions with in excess of $100 million of assets under administration. He writes exclusively for
StockHouse.ca and StockHouse.com.
David's proprietary indicators were developed after years of using traditional technical indicators, which he found did not do a good
job for him of predicting turning points. His indicators are designed to identify turning points sooner. Click here for a description of
his proprietary indicators. |
