NASDAQ: Whoops!

The NASDAQ 100 Index gapped up today to form a gap island reversal. (Chart courtesy Decisionpoint.com). The last time it did this was in December 2011, following which it reacted back before commencing a sustained rally.

Here's the 5% X 3 box reversal Point and Figure chart. Note the target destination of 3,739.2 - which is 38% above current price (time elapse not capable of being anticipated):

The chart below - courtesy stockcharts.com - is a ratio of the NASDAQ 100 divided by the $SPX. Clearly, the NASDAQ has been leading the way. There is "optimism" in the technology (entrepreneurial) sector.

Of significant interest was a report today concerning the Fed's forecast of 2012 economic activity. (See http://www.cnbc.com/id/47176571 ) One quote caught my eye:

"Bernanke also expressed concern over the "fiscal cliff," a name he has given to the damage that would result if Congress does not reach an agreement by the end of the year on deficit reduction. Should an impasse prevail, automatic cuts and tax hikes would take place.

He warned that the lack of agreement "would be a significant risk to the recovery."

This from "Helicopter Ben"? Clearly, he has shifted his emphasis away from goosing the money supply and towards the need to balance the budget.

Conclusion

The technical evidence is mounting. There may be flaws in the perma-bears arguments that a global economic collapse and a gold price explosion are imminent.

Caveat

The chart below (courtesy Decisionpoint.com) is showing what appears to be a genuine Head and Shoulders reversal pattern. Note the rising volume on the left shoulder, rising volume on the head and falling volume on the right shoulder.

If the neckline is penetrated on the downside, we might see a fall of around 500 points to a level that is close to (or slightly below) the 200 day MA.

That would be consistent with a pullback in the Nasdaq prior to commencing a sustained rally.

One issue on which it is important to focus is that the short term charts and the long term charts are in conflict. The short term charts are unarguably bearish and the long term charts are unarguably bullish. This may or may not be related to election year activity. Personally, I think we are watching are technical reaction. Activity in the energy and technology sectors seems to be rising. Paradoxically, even though the housing index is showing similar bearishness on the short terms charts, the long term chart is also bullish.

Something may be shifting out there.

Brian Bloom

Author, Beyond Neanderthal and The Last Finesse

www.beyondneanderthal.com

26 April 2012

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