Thursday, August 07, 2008


The NASDAQ 100 finally broke out the range it was stuck in for the whole of July. If this was an inverted head and shoulders formation (It does look a little weird, the shoulders each have 2 subshoulders), we should expect a move to just short of 2000. Bears will be thinking that the last couple of days is a C-Wave in a corrective move off the July 15 bottom. The monthly chart, McClellan Summation and other indicators don't support that interpretation either:

This move could fail, of course, but starting from such a low level and being to powerful so far, I'd expect the stochastics to go the full way to the overbought zone. In this chart, I've highlighted a few comparable situations in terms of candles and stochastics:

I looked for a breakout from a bottoming area with a nice white candle and nice smooth stochastics reaching above the 50% point. The December 2007 rally failed. One difference is that it really wasn't at all promising looking in terms of the MACD. But then March 2007 didn't look too promising either... Neither of those rallies had as strong moves in terms of the McClellan Summation. I think the odds are good for a decent rally here.

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