Heh. It was just a little something to lighten up the thread a bit. The whole point of the story was to imply that you have turned bullish because the Fed has cut twice. The Fed funds rate and then the discount rate. I know the discount rate doesn't count, but that technicality was the basis for humor in the story. I have to admit, the story got lamer and lamer as it wore on, because I was getting awfully tired.
>> I think the nasdaq will base sideways a while. <<
Most definitely. This kind of technical damage doesn't right itself overnight. But that doesn't mean we can't rally to 3000. There is an interesting piece on thestreet.com with a technician Helene Meisler, talking about this very point. thestreet.com (I think it might be free in a day or two but to read it now I think you might have to have a subscription to realmoney.com)
She makes a comparison of the transportation average in 1999-2000 which had a 40% decline from top to bottom and took almost 12 months to hit it's lows, similar to the Nasdaq of today. She then made the argument that the Nasdaq was going to have to do the same. But there was one revealing point about her piece. She said before the base-building can begin, the index has to break above the downtrend line first to show that it has bottomed. Then it can base for months before moving significantly higher.
If the Nasdaq and the technology stocks are going to find a bottom and begin the basing process, the first thing we need is a decent rally, one that looks more like the rally from 2300 to 3000 on the transportation chart (Funny, as I'm writing this, I realize how familiar these numbers sound ...) And for the Nasdaq, and the S&P, the first thing to be done for them is crossing their downtrend lines that have been in place since the summer highs. For the Nasdaq, that number is around 2700 to 2750. I use a range because it's not as clear as black and white, but the number should be on a closing basis, not an intraday. For the S&P the price of 1360 would cross the downtrend line. It is important to cross the downtrend line, because since the summer highs, each rally has been halted by that downtrend line, so until the line is broken to the upside, the first step in the bottoming process cannot take place. Until that line is broken, the downtrend remains intact. Once it's broken, we can begin the base-building process.
Well unfortunately for us few remaining bulls, the Nasdaq still hasn't broken above it's downtrend line. I honestly believed we would give it a shot on Thursday or today and at least try to break that downtrend. I think we came about 100 points from it and that was when I was ready to let loose of some of my calls. So it's possible that we haven't even begun the basing process and we slip to the bottom part of the trading channel which could imply new lows, or we continue the rally next week by making this pullback a higher low and we make a run at that downtrend line. Of course, I'm betting on the latter. I'm betting we have seen the near-term bottom, and we will not see new lows, thus making a higher low on this retracement. I see us returning to the upper range of the channel and testing that downtrend line and breaking it. Then, and only then, do I believe the base building can begin. I think some people are making the mistake of saying that the base building has already begun. I think we have to have a close that will eclipse 2700 first (allowing me to exit some or all of my options), then we can build bases for eternity for all I care. No one can say for sure what is going to happen next week. We have not slipped to new lows proving the bears right that the rally is totally over, and we have not broken the downtrend line proving the bulls right either. We will have to see.
Nice job on your energies today Victor "The Predictor" :) |
