| Technical Analysis NASDAQ SMH $XAU OIH |
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| Thursday, January 4, 2007 |
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Nightly Update - $COMPQ,SMH, $XAU,OIH
NASDAQ Composite Index ($COMPQ)- Daily Chart
On the daily chart, you can see that the $COMPQ has been in a strong bullish uptrend since August of '06. If you look at the chart, you can see where this momentum really began to take off with a triple moving average crossover of the 13,34,& 50 day Exponential moving averages (EMA) on August 21st, '06. Furthermore, you can see that when the aroon indicator had a bullish cross at the 20 level(August 14th), all of the other indicators and oscillators followed suit, and went into a 123 Bullish trend reversal. This marked the beginning of a solid Fast moving wave 2 to wave 3 uptrend. Wave 3 is typically the fastest moving wave according to Elliott Wave theory. As you can see, the COMPQ traded in this fast moving wave 2 to wave 3 up, until it placed it's 52 week High at 2468.42 shortly after Options expiration week at the end of November. This high, marked at short term top, and consequently the beginning of a wave 3 to wave 4 lateral pullback. This coiling consolidation has manifested itself as a possible bullish continuation rectangle pattern. However, we won't know if this is a true bullish continuation move until the market tells us so. The $COMPQ needs to confirm the continuation of the existing bullish trend by taking out resistance at 2470.95. Thereby, creating a new wave 4 to wave 5 uptrending move.
If you look at the chart now, Jan 4th, you can see that the probability of the $COMPQ to convincingly break out of it's rectangle pattern is fairly high. This is because the pattern marks itself as a bullish continuation pattern and the indicators and oscillators appear to have marked a short term bottom with oversold levels along with heavy buy volume. When and if the $COMPQ breaks out, it will be confirmed with a triple top breakout. For now, the $COMPQ remains range bound in the rectangle, and we are waiting for momentum to return to the market to determine it's direction. Our stocks do not act well until momentum returns to the market.
We really don't know the direction of $COMPQ yet. It is possible that the $COMPQ could just go up and backtest the broken uptrend line at around 2470 and then retrace down to the 50 EMA level around 2400. This is something that we know in advance is possible. You can't be scared about stuff that you know about in advance. You should be scared about stuff you don't know about. All the stuff we don't know should scare us all the more. That is why I won't suggest new longs or new shorts until we exit this range bound trend. Furthermore, the Aroon is creating some whipsaw, but the rest of the indicators and oscillators remain in a 123 bullish trend reversal. The COMPQ & SMH took out yesterday's highs on volume and that signals that momentum may be returning to the market.
MERRILL LYNCH SEMICONDUCTOR HOLDRS ETF (SMH)- Daily Chart- Optionable
The daily chart of the SMH illustrates that it traded in a parabolic uptrending channel and then topped in tandem with the NASDAQ in November '06. Like the NASDAQ, the SMH has been consolidating in lateral move for the past 2 months. The SMH has been in a coiling/ contracting Symmetrical triangle pattern. For now, the direction of SMH, like the NASDAQ, remains a mystery. The SMH is not out of the woods yet. We won't know the SMH's direction until the market tells us. Even though the pattern scan says the SMH is bearish, I happen to disagree, it just does not seem to fit. We don't know what is going on with the chips, the Q's or the NASDAQ yet. Nevertheless, the SMH had a strong up day today on good volume. Perhaps this is an initial sign of the SMH moving into a leadership position as we enter the new year. For now we have to wait to see how the SMH unfolds going forward. The indicators and oscillators remain in a 123 bearish trend reversal. Apart from the Aroon indicator, the RSI, WM%, PPO and Stochastics appear to have bottomed and are curving upwards. There has to be something going on here with the SMH. For whatever reason, I believe the powers that be are going to take the SMH higher and rally it into the end of January for the January effect to take place. It may be that Bullish sentiment alone, moves the SMH higher despite the current negative internals within the NASDAQ. We can go higher on thin air and defy all logic and fundamentals, and until the top is on we cannot short the COMPQ or the SMH. My gut instinct say they (PPT) are going to take the SMH higher.
The Gold and Silver Index- Philadelphia ($XAU) - Daily Chart - Precious Metals - Optionable
What do we know? Well, we do know that the $XAU has broken the above the wave 3 to wave 4 downtrend line on the daily chart. You can see that $XAU is currently backtesting that downtrend line. Backtest's are always possible, and they should be anticipated as a common occurrence. Sometimes they occur and sometimes they don't. You cannot fear something that you know is possible. I did not issue a short term profit alert on the gold stocks with this backtest, because I am playing the Big Picture/ Macro view of this sector. The long term bullish pattern is intact. However, if you are trading the metal stocks in a different/shorter time frame, you may have taken some profits already and may be looking to reenter this sector when the backtest to the downtrend line is over. The $XAU is till in a bearish trend reversal on the daily, and the Aroon indicator is still bearish. Other indicators and oscillators are also bearish but the PPO is showing signs of bullish divergence. The big move is yet to come in terms of getting set up in precious metal stocks. Patience required.
Oil Services Holders ETF (OIH)- Daily Chart- Energy Sector - Optionable
As far as the OIH goes, support continues to be around $130.00 and resistance $150.00. This has been true since June of '06. As you can see by looking at the chart, the OIH may be forming a new pattern, that of a bullish inverted head and shoulders pattern. Right now the OIH is in a correction, and may go as low as the $125.00 area to form a possible right shoulder. This would be fine, because the long term uptrend still remains intact. As I have said before, pullbacks are an emotional occurrence,they are no fun otherwise they would be called funbacks. The OIH is doing what it is supposed to be doing. You cannot argue with price. The OIH is in a new wave structure up, but we are still waiting to see what pattern it develops into. The indicators and oscillators are in a 123 bearish trend reversal on the daily chart and have not bottomed yet. This bearish trend on the daily coincides with the recent bullish Aroon cross on the weekly chart, which typically causes a counter trend pullback on the daily.
To close this update, the indexes and sectors that I am watching with the most intensity are the NASDAQ, the Q"s and the SMH. We don't know what is going on yet in these, and we are waiting for them to move in order to tell us what direction they are headed in. I am looking to these to give us direction in the overall market for the rest of year.
Edited by Daisy
Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com
daisy@trending123.com
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