T/A by Arthur Hill, StockCharts.com...
stockcharts.com
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Edited for ease of reading:
>>> Nasdaq 100
Commentary Posted: 1 July, 2000
Charts Updated: 01 July 2000
Daily View:
Please refer to the market chart tour homepage for a description of the position ratings and methodology. Daily charts on the market tour are updated daily. The commentary and weekly charts are updated on a weekly basis.
1-July: Trading Position = Bull-Hold. The Nasdaq 100 continues to punch down and counter punch up, and going nowhere at the end of the week. I still have a bullish lean as long as the index remains above 3600.
Position Points:
I am taking a short vacation from July 2 to July 5 and will return to daily updates on Thursday, July 6. Have a great (and hopefully long) weekend.
Since the failed breakout above 3850, the index has formed 6 candlesticks that alternate black and white, what a stomach churner. While Friday’s move may seem impressive, the close remained below the close of the last two white candlesticks, both of which closed at 3771.
These types of consolidation zones are usually continuation patterns that resume on a breakout above the resistance level. The question is: which of the current trends should we use? The short-term is up (based on the strong move from 3000 to 3700), the intermediate-term trend is down (based on the decline from 4800 to 2900) and the long-term trend is up (based on the advance from 1200 to 4800).
Volume has increased on the upside. Wednesday and Thursday witnessed advances with volume that was well above average. If this increase in volume can be confirmed with a break above resistance, el toro would have some mustard (the strong English variety) behind his move.
The failed breakout remains a factor. The breakout at 3850 occurred with a long white candlestick. However, this was immediately followed by a doji (blue arrow) to indicate hesitation. After the next day’s follow through with fairly heavy volume, I thought that the breakout might last. However, the index turned south and broke back through on even heavier volume. This kind of market action only benefits chiropractors.
Bull-hold is the weakest of my bullish position. It implies that the underlying trend remains bullish enough to hold, but not enough to initiate new positions. In erratic markets, the position changes from neutral to bear-hold or bull-hold simply imply a change in bias. Only when a position is marked accumulate, buy, distribute or sell is it deemed strong enough or good enough to initiate a new position.
A 50% retracement of the decline from 4816 to 2897 would take the index to 3850 and a 62% retracement to around 4100. Split the difference and we could be looking at resistance around 4000.
The Percentage Price Oscillator (PPO) slowed its advance over the last few weeks and moved below its 9-day EMA. The move was subtle and momentum cannot be considered bearish, only weaker.
Since the failed breakout, Chaikin Money Flow has weakened, but remains just above zero.
Support: 3600 – Marked by recent trading range support.
Resistance: 3850 – Marked by April reaction high and recent resistance.
Key Candlesticks
20-Jun: After a strong move above 3850, a doji (blue arrow) formed to indicate some indecision.
2-Jun: After advancing over 20% less than 2 weeks, a doji (red arrow) formed to indicate some indecision. This was followed by a candlestick with a long lower shadow of similar length and a weak close to confirm the resistance level.
24-May: After breaking support, a piercing pattern (gray arrow) with a relatively long lower shadow formed. I believe that this is one candlestick to remember. The open was lower than the previous close, the lower shadow indicates selling pressure overtaken by buying pressure and the close shows a very strong reversal that surpasses the midpoint of the long black candlestick’s body. The piercing pattern was followed by a sharp advance above 3300 to confirm it as bullish.
8-May: After a flat opening, the index traded lower and surpassed the previous day’s opening level to form the quasi-bearish engulfing pattern. This weakness follows the reversal at resistance (3850) and a close below 3500 would confirm the bearish nature of the pattern.
28-Apr: I am encouraged by the long lower shadows and the ability of the index to close off of the lows. The move above short-term resistance at 3720 is also heartening and could lead to a test of the support break around 4100. Any rally though is still considered reactionary and within the confines of a larger downtrend.
17-Apr: After breaking support, a large piercing pattern (magenta arrow) formed to mark the start of a reversal from oversold levels. For a piercing pattern to be valid, the white candle should retrace more than 50% of the black candlestick’s body.
10-Apr: A large bearish engulfing pattern formed (red arrow) below resistance and indicated that selling pressure remains intense.
4-Apr: A huge hammer formed and the lower shadow touched support at 3700 (gray arrow). The follow through was a little delayed, but this can be expected after such a gut-wrenching turnaround.
16-Mar: A hammer formed at support and the follow through on Friday indicates that the rally may have further to go (gray arrow). However, it is probably not enough to bet on though.
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Weekly View:
1-July: Investing Position = Bear-Hold. The index has been knocking against resistance for 4 weeks, but cannot break through. This type of consolidation lends credence to the resistance level and I will lean bearish as long as it trades below.
Position Points:
Volume reappeared with the last two weekly levels surpassing the 60-day SMA for the first time since early April. However, one week was up and one week was down. In addition, we had high volume for two weeks and very little progress, which smacks of resistance and distribution.
After an upthrust above 3850 two weeks ago, the index failed to hold and formed a shooting star candlestick at resistance. While not bearish by themselves, this one indicates a resistance breakout failure and occurred on the highest volume in 4 weeks.
The long black candlestick remains the dominant feature of this chart.
On 9-June, the index formed a hammer (red arrow) that was followed by a sharp advance. The enthusiastic advance was met immediately with the indecision of a doji (black arrow).
The index broke the trendline extending up from Oct-98 and the Apr-00 reaction low. The recent rally places the index back above these key breaks, but below resistance. A move above 4000 would nullify the trendline break.
The Percentage Price Oscillator (PPO) remains above its 6-week EMA and advanced to the zero line. A move into positive territory would turn momentum bullish.
The price relative moved above its 10-week EMA and is getting resistance from its previous reaction high.
While the April decline may have been overdone, I believe we should sit up and take notice of the force behind the decline, the weakness of the reaction rallies and the failed follow through. The index declined from 4800 to 3100 in about 7 weeks. It was enough to move daily Chaikin Money Flow to its lowest levels since Sept-98. Market breadth statistics moved to their most bearish levels in many months as well. And, the weekly PPO moved to its lowest level since Oct-98. This does not appear to be an ordinary sell-off, correction or decline and may mark a major turning point in the index. It may not happen overnight, but I believe that the next few months are not likely to be very fun for longs. There is a lot of eager money out there and the reaction rallies are likely to be sharp and convincing. The index could retrace 50% of its recent decline and advance to around 4000. However, I believe that plenty of risk remains and prefer to sit it out.
Support: 3100 – Marked by April and May reaction lows.
Resistance: 3850 – Marked by May reaction high and recent resistance.
Key Candlesticks
23-June: A shooting star candlestick formed at support. A decline below 3600 with a weak close would confirm this as bearish.
9-June: The enthusiastic advance was met with the indecision of a weekly doji (black arrow).
26-May: A hammer (red arrow) formed after the break of support. It is hard to call a support break convincing when a hammer forms on the break. The close off of the low indicates buying pressure and the recent advance confirms the hammer as bullish.
14-Apr: A large black candlestick formed to confirm the hanging man as bearish (magenta arrow).
- Arthur Hill<<< |
