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Which market?
The current downturn looks very similar to the one in July '96, when the
Nasdaq twice as much as the DJIA.
I would not be surprised to see the Nasdaq fall to about 1450 from the
current 1602. Besides being around the 200 day MA, it also represents a
20% rise from the lows in April of this year, which was itself a 20%
rise on the lows of July '96. Given its tendancy to fall below the 200
day MA, however, I would make allowance for a fall as low as 1340, the
trendline of the last two lows.
This negative outlook for the Nasdaq is confirmed by the charts for many
stocks showing no long term support at current levels. The stocks I am
watching here and CSCO, which looks strong at the moment, contrary to
the Nasdaq chart, and INTC, which marginally broke its downtrend on
Friday, but not by enough to convince me it can't reverse back down.
The DJIA also has room on the downside, but not nearly as much as the
Nasdaq, with long term support at 7200, about 5% below Friday's close.
Another point of historical divergence for the DJIA and the Nasdaq: the
double bottoms in the DJIA in July '96 and April '97 occurred 6-7
trading days apart, and Monday is the 9th day after the Tues low. The
Nasdaq did not make a double bottom in April of this year, but instead
bounced off of 1200 support for most of the month.
My conclusion is to watch out for a second bottom early this week, play
for the bounce in the DJIA stocks, but be more cautious about the Nasdaq
stocks unless CSCO and INTC (and maybe MSFT, which is stuck in a gradual
downtrend) lead that index higher.
Regards, DanG
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