NW: While we are playing cards here waiting for the dog days, maybe you could run this piece thru your technical machinery and give us your take. M2
Nasdaq 4,000: a technical panacea?
Some techs say bulls still stand on wobbly legs
By Tomi Kilgore, CBS MarketWatch
Last Update: 1:19 AM ET Jun 21, 2000 Market Snapshot
Market Pulse
NEW YORK (CBS.MW) ? Market technicians celebrated the Nasdaq Composite's leap over the 4,000, saying it paved the way for further upside assaults. Why did so many hail this level as a restorative for the ailing index?
The 4,000 level initially became resistance because prior to Apr. 12, it was support. A support level, once broken, becomes resistance (and vice versa) since buyers at support who fell out of the money will look to get out flat. On April 5 and April 11, the low in the Nasdaq came within points of that mark. See earlier column.
The barrier was reinforced on May 1, when a two week market bounce ended at 3,982.38. People that lose money tend to have long memories; the fact that it was able to clear the hurdle suggests that bulls are beginning to forget.
What are the next targets for the Comp? There is actually a pretty significant technical and psychological point at 4,060.76. That marks the half-way point for the Comp's retracement of its drop from the Mar. 24 high of 5,078.86 and the May 24 low of 3,042.66. Tuesday's intraday high was 4,050.58.
After that, there is resistance at 4,301.03. That translates to a 61.8 percent retracement of the decline -- a major Fibonacci level.
Fibonacci was the ghost name of an early 13th-century mathematician, who discovered a certain sequence of numbers that repeated itself throughout nature (see description in earlier column). Since, technicians have looked to "Fibos" for guidance.
Do bulls now have enough ammo to secure those levels?
Well, just two days ago, some technicals indicated a negative bias, as "momentum" in the Comp started to decline. See previous column. Monday's surge above 3,900 was encouraging as it kept momentum turned up.
Momentum is a statistical analysis of the rate of change, or power, of a move. It compares the strength of advancing days to declining ones.
On Tuesday, momentum fell 59.26 to 174.20, while the Comp rose 23.54 to 4,013.37. The worrisome aspect of this is that Monday's momentum reading of 233.46 is well below the recent high of 669.73 seen on June 9. On that day, the Comp closed at 3,874.84, compared to Monday's close of 3,989.83. This is what techies call a "divergence."
Technical divergence refers to patterns in which the direction of a charted instrument differs from the direction of some technical analyses.
What this suggests is that although the bulls are taking chunks of territory away from the bears, it is leaving the conquered areas sparsely reinforced (how's that for a Risk reference?). If bears were to get a turn before positions can be buttressed, damage can be done with little effort.
Bulls may first have to revisit acquired areas to allow technicals to catch up. Then a more supported attack can be commenced.
Tomi Kilgore is a reporter for CBS MarketWatch.
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