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Strategies & Market Trends : Trade/Invest with Options Jerry a Point & Figure Chartist -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (2141)	4/29/2001 8:39:28 PM
From: 2MAR$	Read Replies (1) \| Respond to of 5893

With the Nasdaq flirting with the possibility of yet another Bull Trap, investors continue to hold their breath as short-term bullish technical patterns begin to take form. With the Inverted Head & Shoulders Pattern now clearly evident within the Dow Jones Industrial Average, it is now time to turn to the Nasdaq Composite for proper guidance regarding Internet Securities. Ever since the 1619.58 low on April 4th, the clear objective (without squeezing shorts) was for a retest of the March 28th's high at 1925. This 1925 did represent a solid pivot from April 11th to April 17th before the Nasdaq's "neckline" finally gave way before, during, and after the surprise Federal Reserve rate cut that took place on the 18th. When determining conviction, technicians first used the low on the 18th (1995.91) as a point-of-control. This level still has not been tested, allowing a solid risk/reward scenario for bullish investors. Nevertheless, once below 1995 shorts will attempt to auction prices back underneath 1975 and wash out most weak longs in the process (especially those who entered after the rate cut). If these levels remain untested, the primary short-term objective will be for a move back to the 2200 level seen on April 20th. Regardless, the much-discussed 2254 low dating back to January 3rd (1st rate cut) still has to be a more critical level. Ancillary evidence that supports a move higher within the Nasdaq (and definitely pulling the Internet and Semiconductor sector upwards) is the crossing of the 10-dma above the 50-dma (2050 and 2020, respectfully). This bullish cross took place on January 25th; however, the market rolled over after roughly five sessions and only marginally traded higher from levels witnessed during the session in which this cross was verified. Other bullish indicators can be found when drawing a trend line from the 1619 low on April 4th through the 1710 low on April 9th. This line bisects the chart at 2060, 15 points underneath Friday's close, and should be reason for underpinning bids during trading on Monday. Moreover, after the GDP report (see below), asset allocation continued to flow out of fixed-income bonds and into more productive equity securities (at least over the last trading week). With yields on the 10-year bond testing the 5.31 percent level for only the second time since January 25th, fund managers continue to paint a picture of the Federal Reserve taking a more conservative stance regarding the Federal Funds rate. It was this stronger-than-expected GDP report for the first quarter (2 percent annual rate versus expectations of a 1.2 percent increase) that was the catalyst for the Dow to trade back above 10,800. With consumer spending outweighing a drop in business investment and inventories, an extremely strong 4.6 percent final sales figure was left for economists to debate over. Moreover, the GDP deflator significantly increased at a rate of 3.2 percent (from 2.0 percent in Q4), while the Personal Consumption Expenditure (PCE_ price deflator rose 3.3 percent and still manages to keep the rising trend intact dating back to 1990. These are all reasons for the market to experience underpinning strength at the expense of fixed income securities. Not helping matter was The University of Michigan's final consumer sentiment index falling to 88.4 in April from 91.5 recorded one month earlier. Since November, the index has fallen 19.2 points, the biggest drop since July to October 1990, the beginning of the last recession. Economists cited job cuts from Cisco Systems Inc., Hewlett-Packard Co. and JDS Uniphase Corp. as possible causes. Consumer sentiment (due to increases in wealth) skyrocketed when the Nasdaq rose from 1357 during the week of October 1st, 1998 to 5132.52 by January 1st, 2000. However, with the collapse to current 2075 levels in roughly one years time, consumer sentiment experienced a parabolic move lower and is now being compared to levels seen during recessionary times. With such swings in consumer sentiment, it only seems prudent to allow for a significant degree of error when comparing to historic levels. In conclusion, consumer sentiment (as a predictor of economic expansion and contraction) may not be as precise nor as influential in the eyes of Greenspan as previously thought. With earnings season almost over, traders that hedged positions over a possible increase in volatility will have no choice but to unwind their position. With the Overall Volatility Index (vix.x) losing six percent on Friday to levels underneath 28, market participants seem to be clearly indicating that even more risk will be taken if short positions are initiated. As mentioned in previous issues, the volatility index will have to eclipse 34 before shorts can sense fear, while a move underneath 25 should confirm bulls are in control. Continuing the theme of anecdotal evidence for new long positions becoming profitable, MACD (on a daily chart) is currently at levels not seen since February when the Composite traded as high as 2656. Technicians call this a Bullish Divergence, and should easily state the case that momentum has finally turned back in favor of the bulls. courtesy NB