What Now?
Now that we have had the obligatory holiday rally at the end of December, where do we go from here? For this we will once again take a look at the Nasdaq Composite with its internal momentum indicator along with its 14 period RSI.
The downsloping channel line has been broken, even though it is unconvincing in terms of both magnitude and volume support. Nonetheless, it is a violation just the same and needs to be watched very closely for signs of upward acceleration. This six week show of strength is the most impressive since the waterfall selloff began in September and must be respected until the market shows it is serious about heading south once again.
Recall in an earlier post that I laid out the case for a rally phase to unfold following the five wave pattern shown by the Dow into its November low. That rally phase is about to be tested in a major way as the Nasdaq momentum indicator is overbought and price is rallying right up into its 40 day cycle change point. Notice on the chart below that over the last few months, that change point has indeed caused a tradeable change in direction for the Nasdaq. A change in direction would be in the direction of the major tend, which is still down.
That tells us that we could see another sharp move lower just after the new year, but we can not dismiss the fact that this could indeed simply be a validation of the November low before a serious push higher. As absurd as it sounds, the total mismanagement of taxpayer funds by the U.S. government may be enough to jump start this economy one more time. The implications of that are very dire, however. It means that once again the government has managed to yet again push the 'day of reckoning' for our economy farther into the future. Think about it - the tech bubble was replaced by the real estate bubble, the real estate bubble may be replaced by the government handing money directly to corporations. All the while, consumers have been racking up massive amounts of debt. What's next? In a few years things could get very ugly, if not sooner.
As always, I will get my cues from the market, not Washington bureaucrats or half baked pundits. Let's see how things unfold. If a rally develops here, we need to be ready to act.
The downsloping channel line has been broken, even though it is unconvincing in terms of both magnitude and volume support. Nonetheless, it is a violation just the same and needs to be watched very closely for signs of upward acceleration. This six week show of strength is the most impressive since the waterfall selloff began in September and must be respected until the market shows it is serious about heading south once again.
Recall in an earlier post that I laid out the case for a rally phase to unfold following the five wave pattern shown by the Dow into its November low. That rally phase is about to be tested in a major way as the Nasdaq momentum indicator is overbought and price is rallying right up into its 40 day cycle change point. Notice on the chart below that over the last few months, that change point has indeed caused a tradeable change in direction for the Nasdaq. A change in direction would be in the direction of the major tend, which is still down.
That tells us that we could see another sharp move lower just after the new year, but we can not dismiss the fact that this could indeed simply be a validation of the November low before a serious push higher. As absurd as it sounds, the total mismanagement of taxpayer funds by the U.S. government may be enough to jump start this economy one more time. The implications of that are very dire, however. It means that once again the government has managed to yet again push the 'day of reckoning' for our economy farther into the future. Think about it - the tech bubble was replaced by the real estate bubble, the real estate bubble may be replaced by the government handing money directly to corporations. All the while, consumers have been racking up massive amounts of debt. What's next? In a few years things could get very ugly, if not sooner.
As always, I will get my cues from the market, not Washington bureaucrats or half baked pundits. Let's see how things unfold. If a rally develops here, we need to be ready to act.
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