T/A--Richard Rhodes, Stockcharts.com, posted 8/4/00...
stockcharts.com
>>> Summary
Yesterday the Nasdaq Composite ($COMPQ) began the trading day in a very weak manner. However, this did not last long, and a rally of great proportion materialized. I saw nothing in that rally to change my opinion on the US equity markets. I am bearish, this is a bear market, and as such, this rally shall fail in very short order. Be forewarned -- for this is the manner in which bear markets trade. A bear market draws everyone to buy when there appears to be a turnaround, yet the rally falters, and consequently moves lower than the previous low. Such are bear markets. If you must trade from the long side, I implore you to use stop-loss orders. They limit your risk, and by doing so you preserve what hard-fought gains you may be enjoying. For many, there are no gains, but for the few, trade smart.
To recap the various markets, interest rates are moving lower as the economic numbers emanating from the US government are "quieting down" somewhat, and are giving policy makers a good deal to think about. Given that the Fed tends to follow, not lead, the interest rate markets, the Fed will not raise the Federal Funds rate at the August meeting. On the other hand, the US Dollar continues to move higher, although I have been looking for it to move lower. As the chart shows, there are several price channels, which have formed, and shall continue to hold the price data. Therefore, I look for a rally to test the previous highs - but that is as far as it goes. I am of the opinion that the US Dollar is building a draw-out top, and the decline will be underway in earnest, when the upward sloping trendline is broken. Gold - nothing further to say, for it continues its relentless move lower.
Nasdaq Composite
The Nasdaq Composite turned in a spectacular rally yesterday, but a day doesn't repair the damage seen for the several months. As I have said before, this is random noise that is meant to confuse traders and investors alike. One minute rally, one minute decline. This is akin to being a punch-drunk fighter, who doesn't know what to think, much less how to act, or for that matter react. My advice -- sit on the sidelines until you have a very good sense on how you would like to position yourself in this market. For many, there are large losses; for the rest there are modest gains. But I don't feel many are accruing profits in the manner in which they are accustomed. Money management is the key in these type of markets, for capital preservation is the goal.
Today, I am going to look at a weekly chart of the Nasdaq Composite to try and filter out some of the random noise that permeates the day in and day out of trading. From the low of 1600 in October 1998, the Nasdaq has been in a sustained rally which was muted somewhat in March/April of this year. This decline has been severe, but given the rise since October 1998, it is well within bull-market parameters to see a decline back to the 2800-2600 area. The rally in May 2000 from 3100 to 4400 has fallen short, has now turned lower, and is destined to test the long-term trendline extending from October 1998 through the lows of May 2000. If broken, then the decline will pick up speed. However, during the interim, there appears to be a trading range developing between the 4400 and 3100 level. Given these are the areas where previous highs and lows are located, one may reasonable say a break of the upper level is bullish, or a break of the lower level bearish. In the context of this chart it is wholly possible, when one stands back from the noise and looks at the trees. So be patient - and see how this saga plays itself out.
I2 Technologies (ITWO)
ITWO is a stock which one must put on the radar screen, for there is an interesting pattern forming as the daily chart shows: a rising wedge, which in technical parlance is considered a bearish formation. The lower trendline of the wedge has been tested 3 times, while the upper trendline has also been tested three times. Subsequently, this pattern will be validated by a decline through the lower trendline, or invalidated as the case may be by a rally through the upper trendline. Given the 20-day stochastics is trending lower, one would reasonably look to become bearish on a rally towards the trendline, and use the trendline as one's line in the sand. In addition, there is support at the 200-day moving average, which has been successfully tested 3 times at present. Therefore, a break of the lower trendline and a decline through the moving average will validate my bearish case -- and a swift move to $70 will be in order.
Position Overview
Indice/Contract Fundamental Technical
Dow Industrials Bearish Bearish
S&P 500 Index Bearish Bearish
NASDAQ Composite Bearish Bearish
Nikkei 225 Bullish Bearish
10- Yr. T-Note Neutral Bearish
Japanese Yen Bullish Neutral
The Euro Bullish Bullish
US Dollar Bearish Neutral
Gold Bearish Bearish
Good luck and good trading,
Richard Rhodes<<< |
