The charts of the Nasdaq look like it will be an interesting week. I have a weekly chart attached, because I believe that the weekly charts take a lot of the daily noise out of the picture, and allow me to see the larger trend better. In the case of the Nasdaq, you can see that price has pulled back from resistance in a bearish engulfing candle, but has not yet broken the channel that it has been in since March. Price this week has been less than the week prior, so I am not sure that this is a powerful bear signal.
We are entering a seasonally thin environment as we approach the summertime, and given the factors that are in play, such as oil, recession fears, etc, I suspect that we will see a break of the channel, and a swing to the downside. The other thing that I am noticing, is that there seem to be a lack of good trading patterns on strong stocks. I was also reading on Reuters this morning that the Chinese markets slumped today on the same fears that I mentioned.
A point that I touched on in an earlier post was how I use the Nasdaq to give a sense of the overall market direction. I will use the other key indexes, the DOW, NYSE, and S&P 500 for rally attempt follow through days, but I have noticed that the Nasdaq seems to set up more reliable patterns that any other index chart. By tradeable patterns, I am referring to 5 wave declines, 3 wave A-B-C pullbacks, double bottoms with tests of the midpoint, 2B bottoms, etc. When these set up, I can be pretty sure that the strong momentum stocks will move out of their patterns as well.
I'll include charts of examples of these in future posts. Until then, I hope that you had a great Memorial Day holiday.
