FEB 4 INDEX UPDATE
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Previously, I had mentioned the possiblity of a RECTANGLE forming on the NDX, which has now been invalidated. However going over some more charts, I noticed that a RECTANGLE is forming on the XLK(technology spyder).
In the last 12 trading days, the XLK had 8 trading days where the intraday highs were within 50 cents of 38.5, forming the UPPER HORIZONTAL TRENDLINE of the RECTANGLE. I realise that there are slight overshoots, but as I have mentioned in the past that in watching RECTANGLEs that one day/intraday overshoots in either direction are common. The LOWER HORIZONTAL TRENDLINE of this RECTANGLE is quite clear with 3 touches around 35.5.
This RECTANGLE on the XLK also formed after breaking a RISING WEDGE to the downside. As mentioned previously, it is common that after a chart formation is broken the resulting move is quick and strong in the direction of the break. Since it was a RISING WEDGE it implies bearishness, but the downside break of this RISING WEDGE did not produce a strong downside move but is now trading in the approximate range of 38.5-35.5 forming a POSSIBLE RECTANGLE. Im interpreting that this possible RECTANGLE is a hint that the bearishness implied in the downside break in the earlier RISING WEDGE is being negated.
Also the RISING WEDGE was broken to the downside 6 days ago. If it was a true BEARISH WEDGE, it is taking its time to selloff. Please keep in mind that this RISING WEDGE which many feel is so negative, did not develop with DECLINING VOLUME but on RISING VOLUME. According to the TEXT-BOOK BEARISH WEDGES should develop on DECLINING VOLUME. Noticed that many are ignoring this issue.
RECTANGLEs commonly takes the direction of the previous trend which in this case is up.
As mentioned above, overshoots of the RECTANGLES TRENDLINEs are common. I have also notice with RECTANGLEs that towards the end of a RECTANGLE there is one last overshoot in the opposite direction of the trend(up) which acts as a trigger for the move that produces the eventual breakout of the RECTANGLE.
So I am suspecting that there should be an downside overshoot of this RECTANGLE as early as tomorrow. This downside overshoot in the XLK could get to the 35-34.5 region, then a rally should start which could break out above the upper trendline.
The depth of the RECTANGlE is about 3 points, so the possible upside target for this RECTANGLE is around 41-42. The XLK is similar to the NDX but also includes DOW HiTECH STOCKs so it does not move precisely with the NDX. A 1-point move in the XLK is approximately 80-100 NDX points. So if I am correct about an upside break in the XLK soon, it would imply a move in the NDX to 2900-3100.
What would negate this POSSIBLE RECTANGLE is if the XLK drops to below 34, say around the 33.5-33 range.
If the NAZ market internals do not significantly deteriorate and we get a move down to the 34.5-35 region, I most likely go long the NDX or XLK or QQQ. Also, my short term technicals would probably be a CLASS 1 BUY signal if the XLK hits the 34.5-35 region tomorrow. |
