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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (32769)	11/8/1999 12:05:00 PM
From: Les H	Read Replies (2) \| Respond to of 99985

Nov 5, 1999 Favors marketweb.com At the highs today the Dow was up over 200 points. We closed up only 64 points for the day. The mighty Nasdaq closed up another 46 points, at another new high. The performance in the Nasdaq this week has been superb, however the Nasdaq is so strongly overbought short term some sort of sharp, but brief, correction is becoming inevitable. The 5-Day RSI on the Nasdaq is well over 90 now. Since the RSI cannot rise above 100 a reading in the 90's here means some sort of correction is coming soon. Now, there are times when overbought extremes like this are actually bullish intermediate term. As one of our favorite technicians, Gerald Appel writes in his book Stock Market Trading Systems: "These initial upthrusts off an important bottom can be similar to a ball being hit by a bat. Experienced baseball fans are often able to tell almost as soon as the ball leaves the bat, whether the drive will carry deeply or whether the hit will stop far short of the stands. The sound of the ball striking the bat provides one clue, but unfortunately stock bids on the tape make no noise.The initial velocity of the drive provides another clue and here the stock market does provide a useful analogy. The stronger the initial momentum of any market move, the further that move is likely to carry." Very often after an important low the market will shoot up strongly into extreme overbought territory like this. However, instead of a big decline occurring after the RSI peaks in the 90's we will instead see just a brief pullback for a few days and then shoot up to still higher prices. Something like that is what we would expect from the Nasdaq. The question however is what effect, if any, a short-term correction in the Nasdaq from here will have on the Dow? We gave our subscribers an upside projection for this week calling for 10956 intraday plus or minus 107 points. We moved close to the center of that projection today. We have also stated that the Dow will normally find strong resistance when it rallies up near or just above the top of its 21-Day 3 1/2% Exponential Trading Band. The top of that band today was 10884. The Dow was up over 200 points at the highs today, reaching a print high of 10842.60, near the top of that band. The resistance near the top of that band was too strong and the Dow pulled back the rest of the day. We look for a brief correction early next week. That correction could last a couple of days, but we look for higher prices to follow. A short-term high is due near November 15, plus or minus 1 day. The decline from there could last two to four trading days, but should also be followed by higher prices. There is important support to any decline next week just above 10486 intraday in the Dow. A decline below that level would not be an out right Sell Signal, but it would signal a stronger decline is coming before the next bottom.