<font color=red>2001 Feb 08 Market Analysis
Update for the NASDAQ 100 Index (NDX)
In our market commentary of February 6, we stated that there were only three possibilities for the rising wedge seen on the Nasdaq 100 index, after the Cisco earnings news release, which was expected to be a catalyst for a move in the market. The three possibilities were:
1. The wedge gets its target, and test the January low;
2. The January low is broken on the test and we go lower; or,
3. A higher low is made right here, and the market moves higher from here.
Where do we go from here? If we do a quick measurement with our trusty Fibonacci ruler, we can see that the downswing from the January 24 high has made a textbook 61.8% retracement – almost too good to be true. We also observe that, on February 5, the NDX tried to hold at the 50% retracement level as well.
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If the market is to go up from here, this is truly the “last call” for buyers. If they do not show up right here, and right now then we are headed in for a test of the January low, perhaps after a day or two of consolidation. We note that if we switch to a Japanese Candlestick chart view of the NDX, and most traders will be able to identify the “hammer” that has been made here.
As I have said before, the hammer pattern is now so easily identifiable by traders as a buy signal that it has become highly unreliable, except on days where there is true high-volume capitulation selling. Many will say that yesterday was the bottom and begin to buy. If you recall, hammers need to be confirmed, and in my opinion, it should be confirmed by an immediate upthrust. So far, we do not have this.
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Until there is a day of strong upthrust, the jury is still out. For all we know, this is a failing bounce, where it moves up weakly for a day or two, before another move to the downside is made. What is a trader to do?
If you are short, a close above 2473, the close of February 6, should be a good place to admit defeat. If you are long, 2410, yesterday’s closing price, is probably a good place to consider a protective stop loss. My opinion is that if the NDX cannot levitate here, the hammer will have lured a lot of buyers into going long this morning, and they will be trapped, providing sell orders to propel the NDX to the downside on break of yesterday’s low of 2349. |
