Nascomp:
Consolidation + Higher Low
Wide range (consolidation) from 2,740 to 2,800 implies further downside, but we also got a higher low. Watch for breaks.

From yesterday's commentary,"...In the short term, we should see an immediate upside reversal, because the 15 Minute Chart is at 50% retracement. I would watch for it, and buy with a stop at the low. If we continue down, don't short - wait for the reversal. It will come....."
And, it did - about 30 points lower. The only problem is, the resulting rally did not ensue back to the high. Instead, we pushed back down again, to consolidate. So, while this gave us some nice short term rally profits intraday, it leaves us in a quandry in the medium term.

Look at the 15 Minute Chart. You can see the higher low at about 2,748. We can also see a clear triangle consolidation above this level. Not good. For tomorrow, it's really a toss-up. My"best sense" tells me it is going to turn back down, and penetrate 2,740 to head on down to 2,675 and then reverse back up to head to the top of the channel. Can't tell though. Will just have to see.

Short Term NASDAQ

In the short term, I think we have some"easy" money coming tomorrow. Watch the line across lows in the 5 Minute Chart, and be ready to short any move down through 2,775 - even right at the Open. Cover at 2,785 - a tight margin. On the upside, I would hold off unless the market crosses 2,800.

Medium Term NASDAQ

I have to repeat what I said yesterday: In the medium term, we are still Long with our mental stop widened out to the 2,675 level. Since we crossed the blue trendline solidly in the Daily, I have to think the market is trying to scare the heck out of us, and it's working on me. There are good odds, in my opinion, of a renewed upward push, UNLESS we cross 10,675. At that point you have to concede and go with what the market is saying it wants to do, namely, go back to 2,500. As I say, I don't think that will happen. But it could.

Summary:

We are still in defensive mode, and the caution flag is still out there. My"best sense" is we are going to see a market that shakes out some bulls by moving back to 2,675 before continuing on up. But, we could break right through 2,800. If so, we need to get on board there with stops at the same level. I think the move away from the range 2,740 to 2,800 could be a strong one.

Ed Downs

DOW


Upside Consolidation Break
Moving stops up and managing the rally. Watch OEX and NASDAQ tomorrow carefully for downside breaks. Unlikely, but we are definitely in the yellow zone.

From yesterday's commentary,"...In the short term, we want to focus our attention on the tight line moving through 10,900 at the Close (not shown). If you have a 5 Minute Chart handy, you can see this. The implication is, if we break 10,900 we are going to move on up and break the high, and Longs should therefore be entered at that level, with stops the same......"
We did indeed see a nice move up this morning through the upper line at 10,900, coming off support at 10,860. And of course, if you look at the 15 Minute Chart you can see, just as plain as day, the consolidation that finished, running from 10,850 to 10,950.
What does this mean? The low is at 10,600 and the consolidation is at 10,900. So, if you have been following our math on SignalWatch for a while, you know this means we should move up the difference of 300 points, to 11,200. What is our target in the Daily Chart? 11,250. Close enough.

I don't want to get cocky here. That's usually when I get humbled the most! However, this is certainly a strong pattern, and we should continue going with it. We are Long from 10,575 and holding for the (continued) ride. I will have to admit, I was worried inside the wide consolidation in the Daily Chart, but our levels have paid off. We are still"in" and glad to be there.

Short Term Dow

With a runaway run at the end of the day, I would logically expect a retracement to form. It's really hard to say, because there is nothing"technical" I can base any conclusions from in the very short term. In general, look for intraday consolidations in the 5 Minute Charts and trade the upside breaks. And, be ready to short any moves back through 10,950 - indicating a failed rally attempt. Again, this is only for very short term players.

Medium Term Dow

In the medium term, we have a clear upside consolidation break, and should consider going Long on any pullback. I always like to wait for the pullback because there almost always is one. Two days ago, I suggested this and lo and behold, we retraced yesterday. Getting in this morning saved you 50-75 points. Same goes for tomorrow. Might want to wait for Monday. However, if you DO go Long here, I'd just hold pretty tight stops at 10,950.

NASDAQ Composite and
OEX (S&P 100)

From yesterday:"Only if we cross 710 on the OEX (down) or 2,675 on the NASDAQ (down) will we become concerned there. The only thing that worries me a bit is the head and shoulders pattern in the NASDAQ, 15 Minute Chart." **

While still intact for the medium term, the NASDAQ is still weak in the short term, forming a classic pattern today - moving up and down to consolidate. Now, we are in a dilemna. Either the higher low that formed early this afternoon will hold and lead to a rally back to the high, or the consolidation will form one more leg down and break the low. Watch 2,790 up and 2,740 down to find out.

The OEX is a carbon copy of the NASDAQ - forming a wide consolidation above the short term low, with a higher low on the last leg. We're watching 719 up and 712 down on that one.

In Summary:

Nice moves on the Dow today, range on the other indexes we track. All in all, we are still bullish as long as the OEX holds above 710 and the NASDAQ above 2,675. We are in"caution mode" on these two right now. The Dow looks good to go, breaking an upside consolidation in the 15 Minute Chart with considerable force. We will hold mental stops at 10,900 - moving them up today.

Thanks for listening, and good luck in your trading!

Ed Downs




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