Friday, November 07, 2008

Is The NASDAQ Trying To Put In A Bottom?

Trading has been very choppy over the past few weeks as the market decides which way it will go next. Trying to trade the stock market right now can be extremely frustrating and costly as it's very easy to find yourself on the wrong side of this market which is why I am on the sidelines right now.

Even though I don't have a position in the market that doesn't mean I'm not doing my homework and putting together a game plan. Here is my opinion as to what I am looking for and what I see taking place in the NASDAQ.

Above is a daily chart of the NASDAQ 100 (NDX). You'll notice that there is a 1-2-3 formation that is beginning to develop which could mean the market is trying to put in a bottom. The 1-2-3 formation will be confirmed ONLY if point 2 is taken out. That means prices must rally ABOVE point 2 for this formation to be confirmed.

In the chart below we have a weekly chart of the NASDAQ which gives us a longer term view of the market. As I pointed out last week, many of the stock indices formed weekly bullish engulfment patterns which happens to be one of my favorite patterns to trade especially when COMBINED with other indicators.

So now we have a weekly bullish engulfment pattern COMBINED with a daily bullish 1-2-3 formation. In my opinion we are beginning to see the pieces of the puzzle come together which "suggests" that the NASDAQ might be in the process of putting in a bottom.

Does this mean we all should run out Monday morning and buy stocks on the open? Of course not! What it does mean is that I will not touch this market on the long side until I see the NASDAQ move above point 2 which is where I'd consider going long. Until then I will wait patiently for the next trade. Once again this is just my opinion I am sharing as to what I am anticipation and how I will react if things unfold the way I see it. As always, we'll see what happens.


Jeff said...


As always thanks for your thought provoking and insightful comments.


jafo said...

Have had your site bookmarked for a while now and have always appreciated your laymans approach in articulating your thoughts. Do appreciate -

As far as trading a close above your chart point #2, how do you decide when it's time to go in. Do you wait for a couple days close above that point, and then a retest - or - do you initiate a position on the first days close above point #2? Curious your methodology for making the decision to go in - thank you

Kevin said...

Thanks for the kind words Jeff..

Hi Jafo,

I'd just buy as price moves a few tics above point 2. If you want to be conservative you can wait for a close above point 2.


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