View from David Bensimon
The main US Equity Indices have reached a pivotal juncture. On the NDX Weekly Line chart, Friday's close was just a touch below the main resistance channel connecting the March and July tops. Using Daily Candles, Friday's high (3868) was right at the descending trendline from 24MAR and 17JUL. Looking back over the previous year, 3872 was also significant top on 01MAY, and early January saw considerable resistance between 3850-3900. On shorter frames, the Hourly and 30-minute charts are producing negative divergence on
MACD-Histogram and ROC oscillators, but Daily and Weekly
momentum signals look healthy.
The upshot is that a convincing break of 3870 (eg. a Daily
close at or above 3900) would indicate a quick follow-through to 4200 on the way to 4700. However, I am inclined to suggest that the time for that rally has (still) not yet come. In addition to slowing intraday momentum, the wavestructure since the 3341 low on 03AUG is difficult to view as cleanly impulsive -- which should be the case for Wave (3) up. Rather, it has a decidedly corrective form indicative of a large B-wave within Wave (2), following the initial leg down from 4089 to 3341.
Several items point to a target of 3350-3400 for wave C to
complete a flat Wave (2) of V. First, the spike intra-day low in wave A is quite flimsy against the low Daily Close of 3477 on 28JUL. A 62% retracement of the recent rally -- arriving around 3400 -- would provide the chance for a lower Close with higher intra-day bottom ... a good key reversal
opportunity. Second, the main rising support line connecting
the key troughs in OCT98, OCT99, and MAY00 intersects with
a downsloping channel -- through the JUN and JUL Weekly
Closing bottoms -- in the cited zone in the coming week or so. This downsloping channel happens also to be parallel to the upper channel mentioned earlier against which the market is now bumping. Therefore, a move from current channel top to channel bottom which meets a rising primary trendline would provide additional significant support for a key reversal.
Touching and bouncing from the primary uptrend at a higher
low than the MAY00 trough would also signal the likelihood for a major subsequent rally (from 3400 to 4700). Furthermore, a drop now from 3870 to 3370 would create the right side of a downsloping Head and Shoulders with neckline at the target.
Since June, NDX has experienced a pattern of rejecting several clear H&S opportunities, and another one in late August would again contribute to a sharp reversal.
All in all, I would rather cover profitable long positions ahead of the Fed around 3870, and either go short with a tight stop-and-reverse (a risk/reward ratio of better than 50 to 500 seems quite possible) or wait for the clear break of upper resistance to get back into the longside.
[Please note that this analysis is not a recommendation to
trade securities or derivatives, and is provided for educational purposes only.]
Ciao for now
David
http://polarpacific@primus.com.au |
