Changing Direction: NASDAQ 100 Micro-Trend Upswing on Weekly Charts

It seemed like a long week . . .

Monday’s open gave us a wide downward gap in the NASDAQ 100 from last Friday’s pullback. Not what investors wanted to see. Tuesday, NASDAQ attempted to rally back, but failed – giving back most of its intra-day gains and ultimately closing just above Monday’s high-water mark. Wednesday, the market got serious, gapping down at open but storming upward all day to close back within striking range of last Friday’s close. Thursday, the NASDAQ gapped up at open and rallied, convincingly until it took out last week’s high. Friday’s market action boosted the NASDAQ 100 to close at a new recent high. In fact, Friday’s close of 1316.16 is the highest NASDAQ 100 close since November of last year, five months ago.

On the NASDAQ 100 daily chart, three of the four General Market Trends (GMT) remain green, which is positive. Only the long-term indicator, which is reflective of a year’s activity, remains red. (see GMT Red/Green indicator box in the side bar)

The daily charts for the other major indexes tracked in the GMT box show continued strength in the Micro and Short trend; however, their Mid-term trend has yet to break back to the positive side. In this regard, the NASDAQ 100 has demonstrated more resilience over the four months, while the major markets attempt to put in a bottom.

In fact, in early March, the NASDAQ 100 successfully tested the prior low from November and has now rallied to a new five-month high. If you enlarge the daily chart, above, you can see the NASDAQ 100 low in Nov-08, followed by three months of lateral trading or consolidation. In early Mar-09, you can also see the test of the Nov-08 low. Note that trading approached, yet stayed above that low. This was a successful test. There was firm support for prices at that level.

Next, note the Mar/Apr-09 rallied to a new high. Friday’s NASDAQ 100 close constitutes a higher high than the most recent NASDAQ 100 high. Friday’s close is the new recent high. It’s the highest close-to-date in 2009. And, it’s the highest high since Nov-08. It would seem the NASDAQ is trying to put in a solid bottom. On the daily chart, it looks to be a valid double-bottom pattern.

The big news, again, is the NASDAQ 100. The weekly NASDAQ 100 GMT Micro-trend changed to green. All other indexes I’m tracking remained decidedly red. (see GMT Red/Green indicator box in the above side bar)

I use weekly charts as validation of the overriding market sentiment. As the above GMT indicator box demonstrates (see top sidebar), overall market sentiment remains pessimistic, when measured on a weekly basis.

Market sentiment is like a huge ocean liner: it takes a while to turn it around. The daily GMT is like the rudder. Its direction provides evidence of directional steering; however, it’s the weekly GMT that gauges the magnitude of that turn. The NASDAQ 100’s weekly GMT Micro-trend turned green this week. The attempt to turn the NASDAQ 100 vessel is now registering.

In the above NASDAQ 100 chart, first note the up-tick in the red line in the bottom window. This line represents the weekly Micro-trend of GMT.

Next, take note of the larger, blue box I’ve drawn in the upper window. This blue box represents what I perceive to be the proving ground. If the NASDAQ 100 can convincingly move through this region, I think this rally may have legs to continue. The downdraft that has sucked the life out of the broader markets will be severely challenged.

While still reviewing the upper window, note the Cyan box inside the blue box. This is the immediate test for the NASDAQ 100. If it can rally through this area, I believe the odds of it completing its near-term push through the larger, blue box will be greatly improved.

That heading is not intended as political commentary; however, it is good advice in reading charts. When you examine the blue and cyan boxes I’ve drawn in the above, weekly chart you’ll find the left side of those boxes corresponds with price action on the left.

Specifically take note of the bottom line in the larger, blue box. Observe how it rides across the tops of the major action during the NASDAQ’s three-month lateral consolidation.

Notice, too, how there are several bars (weeks) worth of price activity on the extreme left of that box that penetrate that line. Those left-most bars indicate a range of congestion – indecision. Subsequently, in viewing bars to the right of that congestion, we see the market made up its mind and plunged beneath that area of indecision.

That area of indecision became an area of resistance. This can be witnessed as we study the three-month lateral consolidation beneath that former area of indecision. We find three consecutive tests within that consolidation period where prices moved up to that range, but failed to convincingly push through it.

The big news, over the last two weeks, is this: the NASDAQ 100 managed to push convincingly into that range of indecision.

It started last week, as the NASDAQ mounted its fourth test of the resistance at the lower boundary of the blue box. It penetrated, during mid-week, but fell back to close near that lower boundary of resistance. This week, as stated in the first paragraph above, the NASDAQ seemed to languish at the start but rallied nicely above resistance on Thursday and Friday.

According to theory, that lower boundary in the blue box should now act as support. That is what we’ll be looking for over the next week. We want to see prices consolidate above the lower boundary of that blue box. If that happens, we could take that as encouragement that the NASDAQ 100 really does want to turn around. In fact, it is likely that another week’s price action above that lower boundary of the blue box will cause the Short-term weekly GMT indicator to turn green.

The dark-side to this good news is this: the other major market indexes that I track in my GMT, although showing improvement, have a much tougher upward battle than what the NASDAQ 100 has had. The question remains, if these other indexes continue to languish, will that pull the NASDAQ 100 back down?

I’ll be watching with baited breath.

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