NASDAQ Commentary for Monday, Jan 29 2001..
On the 15 minute chart, we have a series of channels that have flip flopped up and down, but we can see how each has had a break from its normal trend to show a reverse. Thursday's pattern showed bullish descending wedge that ended up breaking to the downside from a gap down. Friday has a crude parallel channel is well though it is not as well defined. The most interesting item to note however, is the recent move and correction as indicated in red. The move from the high around 2890 to the low near 2685 is about 215 points. A 50% retrace of this move puts us near 2780 which is right where the Nasdaq stalled on Friday. 50% retracements are typical so if we move higher from here then we may get another test of the high and the retracement fails to apply here. A continued move lower from the open on Monday should at least test Friday's low and likely lower.
On the hourly chart, we just have an expanded view of the recent move and correction as well as the lower support lines to watch for which are near 2660, 2620 which fills the gap, and then 2580. A break below 2580 opens the door to 2300 (not shown in this time frame).
On the daily chart, we have the long term blue downtrend line which has been broken. We also have a rising wedge pattern which is the more immediate pattern in this time frame and is bearish. As you can see, the Nasdaq broke out of the wedge to the upside and the proceeded to fall below the lower trendline and back test it several times. On an alternate log scale a break of 2820 would confirm the down movement and we got this on Friday. Thus, the trend is now down. The total move from the low near 2250 to the high near 2890 is about 640 points. A 50% retrace of this move puts us near 2570 which coincidently falls on the long term blue down trendline. We have to watch this level carefully as a potential reversal poiunt back to the upside. A break of this level, opens the door to 2300 and possibly lower lows. The stochastics are now crossed and have clearly turned down, thus the bias is down and 2570-2580 looks likely.
For tomorrow, the bias is definitively down based on stochastics and clues from the charts. If we get an immediate move higher from the open on Monday, then we have the potential to move back to 2900 or higher. However, a continued move lower is more likely right now with a potential target of 2580 at least. One thing to keep in mind is the FED meeting this week. By my analysis, any cut of 50bp or less will be met by selling as this is already factored into the market, though a 50bp may produce a short term pop first. 75bp does not look likely and if we do get it, may be highly questioned as to why there is a cut so large so the eventual outcome may also be selling but may be delayed. The market is not getting any better folks. The Nasdaq has been cut by over 40% but earnings are falling so P/E's are still indicating the market is very overvalued. Greenspan has tesitifed that the current growth rate is ZERO percent, companies are warning left and right, the FED is pumping liquidity into market with coupon passes and repos at an alarming rate, and we just got a 50bp surprise rate cut only a few weeks ago with more on the way. Clearly there is something wrong here, and the market's current state of euphoria over a "bottom" may be wrongly justified. Nevertheless, we have to watch the near term action and I suspect we may get a decline Monday followed by a small rally going into the FED meeting that should produce a pop and then a more rapid decline towards the end of the week. Let's see how it plays out.
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