Why I Am Cautious On The Nasdaq

The stock market has had a nice rally since July but now I am becoming a little cautious on the overall market. First of all, everyone is bullish...When everyone is bullish on stocks, that tells me that the market will most likely go lower. If you look at the above chart which is a 3 1/2 year weekly chart of the nasdaq composite, you will see that the comp is at the top of a rising 2 year channel. You'll also notice that for the past 3 years, the nasdaq experienced selling pressure at the beginning of the year which is where we are now. So how will I trade this? Well notice how the 10 week moving average has done a good job of containing the April 2006 to July 2006 down trend and has also supported the July 2006 to December rally. As long as this average holds and the market goes higher, I will continue to stay long and play from the long side but if we break that moving average, I will exit longs and look to short.. We'll see how things unfold.

>Tags:
trading, stocks, investing, commodities, gold